NEW DELHI: The Japanese yen strengthened to a seven-month high against the US dollar on Tuesday, reaching 152.89 yen per dollar, its strongest level since February, as traders increased bets that the Bank of Japan (BOJ) could raise interest rates later this month.

The yen’s latest rally has been driven by growing expectations of further monetary tightening by the BOJ, along with investors unwinding yen-funded carry trades and short positions. The currency has gained roughly 4.5% from around 160 yen per dollar early last week.

The stronger yen comes as Japan’s economy showed improved growth in the April-June quarter, while stronger wage data has added to expectations that the central bank may continue raising borrowing costs. Markets are now closely watching the BOJ’s upcoming policy meeting for indications of its next rate move.

The yen’s rapid appreciation is also putting pressure on the popular carry trade, in which investors borrow at Japan’s relatively low interest rates and invest in higher-yielding assets overseas. A further unwinding of these positions could increase volatility across global financial markets.