(Bloomberg) -- The yen reached the highest level this year versus the dollar amid bets that Japanese monetary authorities will deliver further policy tightening this year, while markets braced for an expected interest-rate cut from the Federal Reserve next week.

Most Read from Bloomberg

• Housing’s Worst Crisis in Decades Reverberates Through 2024 Race

• An Affordable Nomadic Home Design Struggles to Adapt to Urban Life

• US Driving and Congestion Rates Are Higher Than Ever

• A City Finds Success Using 'Trees as Medicine'

• The Hague Is World’s First City to Ban Oil and Air Travel Ads

Japan’s currency gained for a fourth straight day on Friday, by as much as 1.1%. It touched 140.29 per dollar, the strongest since the end of December. In the US, traders are boosting bets on a possible half-point Fed rate reduction next week after a Wall Street Journal report that policymakers were still mulling that magnitude of easing, rather than a quarter-point.

Meanwhile, BOJ officials this week signaled further rate hikes are in play there. While most analysts expect the central bank to hold steady at its meeting next week, the remarks from the central bankers showed tightening is possible later in the year.

Over half of BOJ watchers see a hike in December. At the same time, traders are pricing in more than 100 basis points of Fed easing this year.

Against the backdrop of narrowing rate differentials, the yen has rebounded since touching the weakest level in decades around mid-year. It has gained more than 14% since the end of June.

Asset managers are now the most bullish on the yen since March 2021, according to data through Sept. 10 from the Commodity Futures Trading Commission. The yen trimmed its gain later in the day, trading near 140.93 in the New York afternoon.

Some hedge funds are also adding to wagers on yen strength in the options market on expectations the currency will extend its rally.

The yen can break through 140 per dollar if the Fed cuts by 50 basis points next week, according to Brad Bechtel, global head of FX at Jefferies Financial Group Inc. The yen hasn’t been that strong in more than a year.

“With volatility coming from the Fed meeting and BOJ meeting next week, the yen may cross the 140 level next week,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York. “There is no strong reason to sell the yen now.”

(Adds data on yen positioning.)

Most Read from Bloomberg Businessweek

• The Man Who Made Nike Uncool

• College Football Players Learn an Ugly Truth About Getting Paid

• EV Leases Go as Low as $20 a Month to Help Dealers Clear Their Lots

• The Vegas Sphere’s First Live Sporting Event Will Be an Expensive One

• China Can Avoid Japan’s Lost Decades If It Follows Korea’s Path

©2024 Bloomberg L.P.