By Chibuike Oguh and Samuel Indyk

NEW YORK/LONDON (Reuters) - The U.S. dollar fell to a more than one-year low versus the yen on Monday, as expectations increased that the Federal Reserve could deliver a supersized cut to interest rates later this week.

The Fed had been widely expected to announce at least a 25-basis-point cut to interest rates at the conclusion of its September policy meeting on Wednesday.

But reports by the Wall Street Journal and Financial Times last week sparked speculation among traders that the central bank could deliver a more aggressive 50 bp cut.

Futures markets are pricing in a 61% chance of a 50 bp cut, up from around 15% last week.

"There's only really one story today and that is a continuation of what we saw last week: after the CPI, the market was comfortable with a 25 basis point rate hike but many people suspect the Fed planted a story to put 50 basis points back on the table," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

"The markets have responded accordingly. And in fact, they're continuing to adjust."

The dollar traded as low as 139.58 yen in Asia hours, which was the lowest since July 2023. It was last down 0.10% at 140.690 yen.

The dollar index, which measures the currency against six others including the euro, yen and pound, was down 0.29% to 100.73.

"I think that part of it maybe some of the price action may have been exaggerated by the fact that China, Japan, and South Korea on vacation today," Chandler added.

U.S. Treasury yields have been falling in the run-up to the highly anticipated Fed meeting, particularly as odds stack up for a half-point rate cut.

Benchmark 10-year yields are down 30 basis points in about two weeks. Two-year yields, more closely linked to monetary policy expectations, fell 2.5 basis points to 3.5509% and down from roughly 3.94% two weeks ago.

Investors are also looking to the Bank of Japan's interest rate decision on Friday, when it is expected to keep its short-term policy rate target steady at 0.25%, having raised rates twice already this year.

BOJ board members have indicated they are keen to see rates higher, and the narrowing gap between rates in Japan and other major currencies has spurred the yen higher and caused billions of dollars worth of yen-funded carry trades to be unwound.

Sterling rose 0.64% to $1.3206. The euro was up 0.42% at $1.1123.

The European Central Bank cut interest rates by 25 bps last week, but ECB President Christine Lagarde dampened expectations for another reduction in borrowing costs next month.