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By Bloomberg

The dollar headed for its biggest back-to- back weekly gain versus the yen since November amid confidence the U.S. is expanding fast enough for the Federal Reserve to start raising interest rates this year.

The greenback’s advance sent it to the strongest level against the yen in 12 years on Thursday and left it higher in the week versus all 16 of its major peers. Bulls are counting on an improved U.S. jobs market and signs inflation is picking up to lead to higher borrowing costs as Japan and the euro zone keep applying monetary stimulus to revive their economies.

“It’s only a matter of time before the capacity in the labor market’s going to be so tight that we’re going to start seeing a push-through into wage inflation,” Peter Rosenstreich, head of market strategy at Swissquote Bank SA in Gland, Switzerland, said in an interview on Bloomberg’s “Countdown” program. “That’s going to force the Fed to move in September. We remain solidly bullish on the dollar.”

The U.S. currency has been climbing against its Japanese counterpart since the middle of May and touched 124.46 yen on Thursday, its strongest level since December 2002.

The dollar was little changed at 123.98 as of 8:36 a.m. in New York Friday, though it’s still 3.9 percent higher in the past two weeks, the biggest jump since the period ending Nov. 7.

Gross domestic product in the U.S. shrank at a 0.7 percent annualized rate in the first quarter, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9 percent drop.

‘Rebounding Nicely’

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 1 percent this week, adding to last week’s 2.6 percent advance. The dollar fell 0.3 percent Friday to $1.0980 per euro, leaving it 0.3 percent stronger in the week.

The greenback started rallying on May 22, when a key inflation measure climbed faster than economists predicted and Fed Chair Janet Yellen said she expected rates to increase in 2015.

Data next week on manufacturing and jobs will help investors determine whether that’s realistic and if a first- quarter U.S. economic slowdown was temporary. Revisions to gross domestic product, the volume of all goods and services produced, will show a contraction in the first three months, according to a Bloomberg survey of economists before the release on Friday.

“Data have been rebounding nicely,” giving the dollar scope to climb, Morgan Stanley strategists led by London-based Hans Redeker wrote in a client note on Thursday. “Further solid employment gains are likely to prompt the market to re-price current sanguine expectations for Fed tightening.”

Kiwi’s Drop

The dollar’s biggest gain on Friday was versus its New Zealand counterpart, which fell 0.7 percent to 71.27 U.S. cents after a report from ANZ Bank New Zealand Ltd. showed business confidence and inflation expectations in the nation slumped.

The kiwi was also the biggest loser among major currencies in May, sliding 6.4 percent, compared with a 4.6 percent drop in the Brazilian real, the second-worst performer.

New Zealand’s dollar has fallen for six straight weeks, its longest losing streak since October, as pressure builds on the Reserve Bank to cut borrowing costs.

Policy makers may lower the key interest rate in June and July while keeping the door open to further moves, said Peter Redward, principal at Redward Associates in Auckland.