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NEW YORK: The Japanese yen rallied for a fourth straight session against the dollar on Thursday, hitting a 2-1/2-month high, as investors unwound their long-running bets against the currency ahead of a Bank of Japan meeting next week.

The unwinding of the short bets against the yen, the funding currency used in carry trades, came as a plunge in global stocks in recent sessions drove investors towards traditionally safe assets such as the Swiss franc and Japanese currency. US equities, however, recovered on Thursday after a steep sell-off in the previous session.

In a carry trade, an investor borrows in a currency with low interest rates and invests the proceeds in higher-yielding assets.

The dollar, however, trimmed losses against the yen and euro after data showed the world’s largest economy expanded faster than expected and inflation slowed in the second quarter, disputing brewing expectations of a larger than expected rate cut in September, or Federal Reserve easing at next week’s meeting.

The greenback was last down 0.1% on the day at 153.63 yen.

The rate futures market has priced in a 67.2% chance that the BOJ will raise rates next week, up from about 40% earlier in the week, according to LSEG estimates.

“I think the short-covering in the yen has run its course,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York. “That should take pressure off the Aussie (Australian dollar) and Kiwi (New Zealand dollar), which have been pummelled this week, but also the Mexican peso.”

The euro was slightly up against the dollar at $1.0852, with the dollar index down 0.1% at 104.27. The index was at 104.21 just before the data release.

Advance estimates showed that US gross domestic product (GDP) grew at a 2.8% annualized rate in the last quarter. Economists polled by Reuters had forecast GDP rising at a 2.0% rate.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased at a 2.9% rate after surging at a 3.7% pace in the first quarter.

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