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

• Renewed US equity selling lifts demand for the Yen, weighing on USD/JPY.
• Despite lower Treasury yields, resilient US data and hawkish Fed comments contain the Dollar’s decline.
• An inflation overshoot could warrant quicker rate increases, according to BoJ members.

USD/JPY trades near 157.70 at the time of writing, down 0.47% on the day. The Japanese Yen (JPY) leads all its major counterparts on Thursday as a steep technology- and chip-led sell-off in US equities draws traders into the safe-haven currency. Adding to the pair’s weakness, the US Dollar (USD) has surrendered its earlier advance and turned negative.

Concerns over tighter scrutiny of AI and data centre expansion under a Democratic-controlled Congress are prompting investors to offload technology shares. Such scrutiny could slow capital spending. Previous sell-offs, sparked by disappointing earnings and doubts about returns on heavy AI investment, also drew traders into the Yen. Those moves underline the currency’s increasing sensitivity to equity market swings.

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

At 4.83%, the US 10-year Treasury yield is 6 basis points (bps) below the previous day’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. Its decline remains limited, however, with solid US labour market figures and hawkish comments from Federal Reserve (Fed) officials providing support.

At 189K, US Initial Jobless Claims were below both the previous 195K and the 196K forecast. The four-week moving average eased from 197K to 194.75K. Friday’s Nonfarm Payrolls (NFP) report is now the next focus.

With inflation “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 identified inflation as the Fed’s most important risk, saying, “I do not anticipate inflation will accelerate, but also don’t see it falling at this point.” In his view, gradual tightening “makes sense.”

Expectations of a further rate increase in December gained support from the Bank of Japan’s (BoJ) September meeting minutes, published earlier on Thursday. This provided another boost to the Yen. Members agreed on the need to continue raising interest rates and scale back monetary easing.

Signs that inflation was overshooting expectations would require the BoJ to accelerate rate increases, one member said. Many members also cautioned that higher crude oil prices were keeping upside inflation risks elevated.