Japanese Yen outpaces peers as hawkish BoJ minutes and US tech sell-off bolster demand

• Renewed US equity losses draw buyers to the Yen, pushing USD/JPY lower.
• Firm US figures and hawkish Fed comments curb the Dollar’s decline despite lower Treasury yields.
• An inflation overshoot could warrant quicker rate increases, according to BoJ members.

USD/JPY trades near 157.70 at the time of writing, a daily decline of 0.47%, as the Japanese Yen (JPY) leads gains among the major currencies on Thursday. A steep sell-off in US equities, led by technology and chip stocks, is prompting traders to seek refuge in the Yen. Adding to the pressure on the pair, the US Dollar (USD) has surrendered its earlier advance and turned negative.

Concerns that a Democratic-controlled Congress could subject AI and data centre expansion to closer scrutiny, potentially curbing capital expenditure, are prompting investors to sell technology stocks. The Yen also drew buyers during previous sell-offs sparked by disappointing earnings and doubts about the returns on substantial AI investment. Those episodes underline the currency’s increasing sensitivity to equity market swings.

Demand for government bonds is strengthening as investors shun risk. The resulting decline in Treasury yields is also weighing on the US Dollar.

At 4.83%, the US 10-year Treasury yield is 6 basis points (bps) below the previous session’s close of 4.89%. Having reached an intraday high of 101.67, the US Dollar Index (DXY) now trades near 101.43. The index measures the Greenback against a basket of six major currencies. Robust US labour market figures and hawkish comments from Federal Reserve (Fed) officials are nevertheless keeping the Dollar’s losses contained.

Against forecasts of 196K, US Initial Jobless Claims dropped from 195K to 189K. A decline was also recorded in the four-week moving average, which eased from 197K to 194.75K. Friday’s Nonfarm Payrolls (NFP) report is now the focus.

Speaking on Thursday, Cleveland Fed President Beth Hammack said that “monetary policy needs to move to a restrictive stance”, with inflation having been “too high, moving in the wrong direction.” Richmond Fed President Thomas Barkin said, “I do not anticipate inflation will accelerate, but also don’t see it falling at this point.” Identifying inflation as the Fed’s foremost risk, he said gradual tightening “makes sense.”

Expectations of a further rate rise in December gained support from the minutes of the Bank of Japan’s (BoJ) September meeting, published earlier on Thursday, providing another source of strength for the Yen. Members agreed on the need to continue increasing interest rates and scale back monetary accommodation.

Should inflation show signs of exceeding expectations, one member said the BoJ would have to quicken the pace of rate increases. Rising crude oil prices also leave upside inflation risks elevated, many members warned.