The yen surged to mid-January highs against the US dollar in Asian markets on August 5, as last week's weak US labour data stoked recession worries and continued to weigh on trades.
The Japanese currency traded at 145.43 a dollar, up 0.8 percent, after hitting a mid-January peak of 145.28 in early deals.
US job growth slowed more than expected in July, while the unemployment rate increased to 4.3 percent, which could heighten fears that the labour market is deteriorating and potentially making the economy vulnerable to a recession.
The euro stayed flat at $1.091, and the dollar index was nearly flat too at 103.17, while the Australian dollar fetched $0.6495 and was down 0.25 percent.
"The market pricing has a 50 basis point rate cut by the Fed at its September meeting, which I think will be too much," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, as per news agency Reuters.
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Yamamoto further said that the US economy is showing signs of slowdown but it's not as bad as the market is pricing in.
But near-term momentum could keep the selloff going, with technical levels also pointing to more yen gains, he said.
Treasury yields have been falling sharply since last week, since Fed maintained its key interest rate at a 23-year high of 5.25-5.50 percent while acknowledging progress towards its 2 percent inflation target and possible rate cuts in the next meeting.
The yen is up 10 percent against the dollar in just over 3 weeks, driven by the Bank of Japan's large 15-basis-point rate hike on July 31 to 0.25 percent.
Barclays analysts said the Japanese currency was the most overbought among G10 majors and therefore "the bar for yet more outperformance in the near term appears high".
Middle East tensions escalated after the latest developments in the war between Israel and Hamas in Gaza, which has driven the oil prices to January lows.
With agency inputs
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