By Suryatapa Bhattacharya

TOKYO--The dollar was stronger against the yen Thursday after the U.S. Federal Reserve announced a much anticipated rate increase and signaled rates would rise at a faster pace next year.

The USD/JPY pair hit 117.86 in early Tokyo trading, the highest level since Feb. 4, up from 115.02 late Wednesday in New York.

The 0.25 percentage point interest rate increase by the Federal Open Market Committee is the second in this economic cycle. Market participants now expect the Fed to accelerate its pace of tightening next year "with the [U.S.] economy much closer to full employment now and a strong likelihood of a fiscal stimulus next year," a CapitalEconomics note said.

The USD/JPY pair is "already overshooting the upside" as investors scramble to price in a third rate increase next year, said FPG Securities Chief Executive Koji Fukaya in Tokyo. The pair was at 117.45 in late Tokyo trading.

There are several factors that could strengthen the yen against the dollar in the coming weeks, analysts said. One factor that could bring the yen back to the 115-range is Japanese exporters repatriating profits from the U.S., which is expected sometime this month, and exporters taking a dollar selling position, Mr. Fukaya said.

Depending on how President-elect Donald Trump reacts to the U.S. interest-rate increase, the dollar could weaken short term, said Daiju Aoki, senior economist at UBS in Tokyo. In the long term, Mr. Aoki expects the U.S. dollar to weaken "given the uncertainty of timing and size of fiscal policy" that Mr. Trump is expected to announce, and its impact on the economy. Also,investors skeptical of the yen's momentum toward the 120-range could switch positions and bring the USD/JPY pair down to the 115-118 range, he added.

The British pound was at $1.2543, compared with $1.2564. The euro was at $1.0515 versus $1.0538.

Interbank Foreign Exchange Rates At 00:50 EST / 0450 GMT

Latest Previous %Chg Daily Daily %Chg

Dollar Rates Close High Low 12/31

USD/JPY Japan 117.46-47 117.03-04 +0.37 117.85 117.03 -2.35

EUR/USD Euro 1.0512-15 1.0535-38 -0.22 1.0541 1.0470 -3.20

GBP/USD U.K. 1.2541-43 1.2562-64 -0.17 1.2566 1.2514 -14.89

USD/CHF Switzerland 1.0222-26 1.0202-06 +0.20 1.0259 1.0200 +2.04

USD/CAD Canada 1.3283-88 1.3282-87 +0.01 1.3325 1.3271 -4.00

AUD/USD Australia 0.7421-25 0.7405-09 +0.22 0.74300.7384 +1.87

NZD/USD New Zealand 0.7104-10 0.7115-21 -0.15 0.7124 0.7076 +4.01

Euro Rates

EUR/JPY Japan 123.45-49 123.30-34 +0.12 123.56 123.06 -5.60

Source: ICAP PLC

Write to Suryatapa Bhattacharya at suryatapa.bhattacharya@wsj.com

(END) Dow Jones Newswires

December 15, 2016 01:08 ET (06:08 GMT)

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