(Bloomberg) -- The yen is on track for its best weekly advance against the greenback since the global financial crisis as speculation the Federal Reserve will slow the pace of rate hikes erodes the greenback’s advantage against the Japanese currency.

The yen gained more than 5% this week, outperforming its Group-of-10 peers and on track for the best weekly performance since 2008 as slower-than-forecast US inflation bolstered the odds of a dovish tilt by the Fed. 

“It is an important turning point for the yen,” said Lee Hardman, a currency analyst at MUFG. “Long USD/JPY has been one of the best performing Group-of-10 FX position for most of this year, so there is a risk of deeper correction lower in the near-term as positioning is squeezed.”

The yen jumped as much as 1.6% to 138.78 per dollar Friday, rallying for a second day to the strongest level since late August. The yen can retest the August levels and a move to “low to mid-130’s is possible,” Hardman said. 

The Japanese currency fell to a 32-year low in October as policy makers pledged to keep borrowing costs at rock bottom levels, widening the interest-rate differential with the US. 

This week’s gains are easing pressure on the government to intervene in the yen, which is still down more than 17% against the greenback in 2022, the most among 16 major currencies tracked by Bloomberg. Japan has spent about 9 trillion yen ($64.4 billion) on interventions in September and October in an attempt to slow the pace of losses.

The Bloomberg Dollar Spot Index fell as much as 1.1% Friday, after a drop of 2% on Thursday, as a key US inflation gauge cooled in October by more than expected. The latest inflation reading is driving speculation that the Fed will slow the pace of its interest-rate increases. 

--With assistance from Libby Cherry.

(Updates prices, adds analyst comment from the third paragraph.)

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