The Japanese yen gained ground against the US dollar on Friday amid a fresh wave of risk aversion in global financial markets. The shift in investor sentiment also supported government bonds, with US Treasury yields falling sharply as equities came under pressure over concerns about the sustainability of the artificial intelligence investment boom.
The currency moves came despite Brent crude oil futures remaining above $110 per barrel, suggesting that fears over economic growth were outweighing concerns about inflation.
The yen rose 0.3% to 156.28 per dollar, leading gains among major currencies. It was on track for a weekly advance of around 1%, its strongest performance since early September.
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The US dollar index, which measures the greenback against a basket of major currencies, stood at 101.52 after touching 101.44 on Thursday, its lowest level since the beginning of the month.
US Treasury Yields Fall as AI Concerns Weigh on Markets
The yield on the benchmark 10-year US Treasury note hovered near a one-month low of 4.953% on Friday, following a sharp decline in the previous session as equity markets sold off.
The renewed concerns over AI-related investment have strengthened demand for government debt, traditionally regarded as a safe-haven asset during periods of market uncertainty.
ING analysts said it remained uncertain whether Treasury yields would stay below 5%, adding that they continued to expect the 10-year yield to rise above that threshold eventually because of inflation, fiscal deficits and developments in AI investment.
“The risk-off environment takes pressure off the Fed to hike next week,” the analysts said, while cautioning against increasing exposure to longer-duration bonds at this stage.
Oil Prices Rise Amid Middle East Tensions
Brent crude futures climbed above $114 per barrel, extending a roughly 4% increase from the previous session after Houthi attacks in Saudi Arabia raised concerns about further disruption to regional energy supplies.
The rise in oil prices has added another layer of uncertainty to the global economic outlook, with investors weighing the risks of higher energy costs against the possibility of weaker economic growth.
OCBC analysts said the currencies benefiting from safe-haven demand varied according to the source of market stress.
Concerns about AI investment were supporting the yen, while Middle East tensions were helping the Canadian dollar and Norwegian krone because of higher oil prices. French fiscal concerns, meanwhile, were benefiting the Swiss franc.
The analysts added that AI-related developments had increasingly become a two-way macroeconomic risk for the US dollar.
Japanese Inflation Strengthens Case for Rate Hike
The yen recorded its strongest daily gain in almost a month on Thursday, ahead of the Bank of Japan’s monetary policy meeting next week.
Japanese data released on Friday showed that annual core consumer inflation exceeded the central bank’s 2% target in September for the first time in nine months, indicating broader price pressures.
The figures strengthened the case for a possible near-term interest rate increase. According to a Reuters poll, the majority of economists expected the Bank of Japan to keep rates unchanged at its upcoming meeting, followed by a quarter-percentage-point increase in December.
Other Major Currencies Post Mixed Moves
Other currencies also recorded gains or remained broadly stable against the US dollar.
Canadian dollar: Strengthened 0.1% to above C$1.40 per US dollar, reaching its strongest level in a month.
Swiss franc: Held steady at 0.8199 per dollar, close to its strongest level in a month.
Chinese offshore yuan: Was little changed at 6.6715 per dollar, remaining near its strongest level in more than four years.
Euro: Traded largely flat at $1.122 as concerns over French public debt continued to weigh on sentiment.
Australian dollar: Held steady at $0.7016.
New Zealand dollar: Rose 0.1% to $0.5687.
Concerns about France’s ability to manage its substantial debt burden have put pressure on French government bonds and raised questions about other heavily indebted eurozone economies, adding to the challenges facing the euro.
The European Central Bank is expected to leave its benchmark interest rate unchanged at 2.5% next week.
