Demand strengthens for outperforming Japanese Yen on US tech rout and hawkish BoJ minutes

• Safe-haven buying lifts the Yen and weighs on USD/JPY as US equities resume their decline.
• Despite lower Treasury yields, resilient US data and hawkish Fed comments help contain the Dollar’s decline.
• An inflation overshoot could warrant quicker rate hikes, according to BoJ members.

Safe-haven demand puts the Japanese Yen (JPY) ahead of all its major counterparts on Thursday, with a steep decline in US equities, led by technology and chip stocks, prompting traders to seek shelter in the currency. Adding to the downward pressure on USD/JPY, the US Dollar (USD) surrenders its earlier gains and turns negative. The pair is trading near 157.70 at the time of writing, a decline of 0.47% for the day.

Concerns that a Democratic-controlled Congress could step up scrutiny of AI and data centre expansion, potentially curbing capital spending, are prompting investors to offload technology stocks. The Yen had also drawn safe-haven flows during earlier sell-offs, when weak earnings cast doubt on the returns from substantial AI investment. These moves underscore the currency’s increasing sensitivity to equity market swings.

Demand for government bonds is also rising as investors retreat from risk, bringing Treasury yields down and weighing on the US Dollar.

From the previous session’s close of 4.89%, the US 10-year Treasury yield drops 6 basis points (bps) to 4.83%. Having touched an intraday high of 101.67, the US Dollar Index (DXY), a gauge of the Greenback against a basket of six major currencies, is trading near 101.43. The decline remains limited, however, with robust US labour market figures and hawkish comments from Federal Reserve (Fed) officials providing support.

Against expectations 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 in focus.

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

Further support for the Yen comes from the Bank of Japan’s (BoJ) September meeting minutes, published earlier on Thursday, which strengthen expectations for another rate hike in December. Members agreed on the need to continue increasing interest rates and scale back monetary easing.

Signs of inflation exceeding expectations would require the BoJ to accelerate rate hikes, one member said. Many members also cautioned that higher crude oil prices continue to pose substantial upside risks to inflation.