NEW YORK: The Japanese yen rose to a five-month high on Tuesday on the back of broad-based selling of the dollar and speculation the Bank of Japan could be close to dialing back record levels of monetary stimulus.

The yen has gained 1.5 percent against the dollar this month, benefiting last week from a rush by investors into currencies deemed safer amid the rout in equity markets.

But while risk appetite has recovered this week, investors have continued to sell dollars and buy yen. The dollar was down more than half a percent against a basket of six currencies at a session low of 89.61, reversing some of its gains last week, when it enjoyed its best performance since 2016.

"A lot of people in the market are expecting the yen to rise, because a turnaround in BoJ monetary policy has not been priced in," Ulrich Leuchtmann, a Frankfurt-based analyst at Commerzbank said.

This helps explain the move, even though there is not consensus that the BoJ will follow other central banks in gradually ending the era of easy money soon.

"I don't buy it," said John Doyle, vice president of dealing and trading at Tempus Inc in Washington. "Last Friday we saw that (BoJ) Governor Kuroda will be reappointed for five more years, and that's a signal to us that business will continue on as usual," Doyle continued.

Douglas Borthwick, head of foreign exchange at Chapdelaine FX in New York, proposed a different explanation for the dollar/yen move on Tuesday: "Japan floated a rules change yesterday in the Nikkei newspaper that they want to reduce the leverage (on forex trading) that can be used by investors."

"This margin news may be the Japanese government warning retail investors that there's no longer a one-way bet on dollar/yen," said Borthwick.

If Japanese investors have to reduce the leverage that they have outstanding, they will have to sell dollars and buy yen, which in turn lowers the dollar/yen.

The yen rose as much as 1.1 percent to 107.4 per dollar, close to the high it hit in September at 107.32 yen. If the yen breaks through that, it will hit its best level since late 2016.

Prospects of higher inflation globally have rattled investors this month and have helped drive equity market falls. Investors will be closely watching the release of US consumer price index data on Wednesday for signs of inflation.

Elsewhere, the euro rose to a daily high of $1.237, up 0.65 percent, as gains in global equity markets encouraged traders to sell the dollar and tiptoe back into riskier assets.