Yen jumps as AI stock worries spark flight to safety
USD/JPY dropped nearly 0.65% on Thursday to around 157, its lowest since September 30, as fears over AI-related investment hit global equities and lifted demand for the Japanese yen.
The move marks the pair’s sharpest one-day decline in a month. The yen gained broadly even as the US dollar firmed slightly, with the US Dollar Index trading near 101.75 after touching a three-week low of 101.45. Traders appeared to favour the Japanese yen over the US dollar given the United States’ central role in the AI investment boom that is unsettling equity markets.
Falling government bond yields reinforced the move. The 10-year US Treasury yield slipped about 1% on the day to near 5.04%, while Japan’s 10-year government bond yield fell 0.50% to around 2.86%. The narrower gap between US and Japanese yields added further support to the yen.
Analysts still see limits to further yen strength, since the US-Japan yield gap remains wide and concerns persist over Japan’s debt load. Economists at Standard Chartered expect the Bank of Japan (BoJ) to hold its policy rate at 1.25% at its October 29-30 meeting after September’s 25-basis-point hike, while keeping a “clearly hawkish tone.” They view December as a “live meeting” but still expect the next hike only in January 2027.
In the United States, the Federal Reserve (Fed) is widely expected to hold rates steady next week after its September 25-basis-point increase. Markets are nonetheless pricing in roughly an 89% chance of another hike in December, according to the CME FedWatch Tool, as the Fed keeps its focus on returning inflation to its 2% target.
For markets, weaker risk appetite tied to AI investment jitters is pushing capital toward safe havens like the yen and government bonds, while keeping pressure on US Treasury yields and the dollar ahead of next week’s Fed and BoJ decisions.
Source: FXStreet