The yen jumped more than 1% against the U.S. dollar to a six-week high on Friday after faster-than-expected inflation in Tokyo supported bets for a Bank of Japan interest rate hike next month.

The dollar sagged against its peers in trading thinned by the U.S. Thanksgiving holiday.

"The yen is turning into the latest momentum trade ... with little friction to prevent it rising in thin holiday trade," said Matt Simpson, senior market analyst at City Index.

The dollar was down 1.05% to 149.93 yen as of 0915 GMT, and earlier dipped to 149.53 yen for the first time since Oct. 21.

The dollar index , which measures the currency against major peers, fell to a two-week low of 105.61 and was last down 0.25% at 105.8.

The dollar remains on track for a 2% rise in November, fuelled by Donald Trump's clear-cut election victory on Nov. 5, which pumped up expectations of big fiscal spending, higher tariffs and tighter borders - all regarded by economists as inflationary.

Yet the U.S. currency has dropped in recent days. The yen has been the star of the week, set for gains of more than 3%, which would be its best week since July.

A fall in U.S. Treasury bond yields has exacerbated the dollar's declines, while Japan's currency has been boosted by safe-haven flows amid Trump's threats of broad tariffs, and by growing bets on BOJ hikes.

Traders currently lay about 60% odds for a quarter-point increase on Dec. 19, and just over half of economists in a Reuters poll predicted the same.

Potentially adding to the case for an increase, Tokyo's core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.2% year-on-year in November from a year earlier, up from 1.8% last month and beating forecasts for a 2.1% gain.

The euro rose 0.23% to $1.0579. Sterling climbed 0.17% to $1.271, after earlier hitting a two-week high at $1.275.

Nicholas Rees, FX market analyst at Monex Europe, said the rally in currencies against the dollar this week was partly technical. U.S. stocks, bonds and the dollar have risen in November, so some investors need to sell at month-end to make sure they're not above their target allocations to U.S. assets.

Source : Reuters