TOKYO, Sept 14 (Reuters) - The dollar climbed close to a 24-year peak against the yen on Wednesday amid a jump in U.S. yields after hotter-than-expected inflation boosted bets for even more aggressive monetary tightening by the Federal Reserve next week.

The dollar rose as high as 144.965 yen in the Asian session, taking it close to the high of 144.99 hit a week ago, a level not seen since August 1998. It last traded 0.15% lower at 144.41.

Overnight, the currency pair, which is extremely sensitive to rate differentials, surged 1.26% as 10-year Treasury yields climbed to a three-month high following an unexpected rise in the U.S. consumer price index (CPI) for August.

The yield on two-year Treasury notes, which typically reflects interest rate expectations, peaked at 3.804% on Wednesday, the highest since 2007. The 10-year yields last stood at 3.4312%.

"This has really shattered the illusion ... that inflation had peaked and was coming down," Ray Attrill, head of currency strategy at National Australia Bank, said in a podcast. "Hence markets have decided that next week's Fed decision is not between 50 and 75 (basis point increase), it's now between 75 and 100."

Financial markets now have fully priced in an interest rate hike of at least 75 bps at the conclusion of the FOMC's policy meeting next week, with a 38% probability of a super-sized, full-percentage-point increase.

A day earlier, the probability of a 100 bps hike was zero.

Nomura's economists said they now believe a 100 bps rate hike is the most likely outcome.

"Markets underappreciate just how entrenched U.S. inflation has become and the magnitude of response that will likely be required from the Fed to dislodge it," they wrote in a note.

The dollar index, which measures the currency against six major peers including the yen, euro and sterling, was little changed at 109.77, after surging 1.5% overnight, its biggest one-day percentage gain since March 2020.

The euro was up 0.19% to $0.9987, while Sterling gained 0.15% to $1.15115, after a 1.61% plunge overnight.

"It’s very hard to bet against a strong U.S. dollar at this stage, which is still not seeing any signs of softness. And if expectations of continued aggressive hiking in the last quarter of the year continues, that may prolong the trend of dollar strength," said Jeff Ng, a senior currency analyst at MUFG Bank.

The risk-sensitive Aussie extended its losses and slid 0.1% to $0.67265, after a precipitous 2.26% slide overnight.

Leading cryptocurrency bitcoin last rose 0.86% to $20,351.

(Reporting by Kevin Buckland; Editing by Kenneth Maxwell and Kim Coghill)