Japanese Yen outperforms as US tech rout and hawkish BoJ minutes lift demand

• USD/JPY retreats as the Yen attracts buyers during a renewed slide in US equities.
• Treasury yields fall, while firm US data and hawkish Fed remarks limit the Dollar’s losses.
• BoJ members see room for faster rate hikes if inflation overshoots expectations.

The Japanese Yen (JPY) outperforms all its major peers on Thursday as traders seek safety in the currency amid a sharp sell-off in US equities led by technology and chip shares. The US Dollar (USD) also gives up earlier gains and slips back into negative territory, adding pressure on USD/JPY. At the time of writing, the pair trades around 157.70, down 0.47% on the day.

Investors sell technology shares on concerns that a Democratic-controlled Congress could tighten scrutiny of AI and data centre expansion, potentially slowing capital spending. Earlier sell-offs, when disappointing earnings raised doubts over whether heavy AI spending would pay off, also sent traders toward the Yen, highlighting its growing sensitivity to swings in equity markets.

Meanwhile, the US Dollar comes under pressure as the shift away from risk drives demand for government bonds, pushing Treasury yields lower.

The US 10-year Treasury yield falls 6 basis points (bps) to 4.83% from the previous day’s close of 4.89%. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.43, off an intraday high of 101.67. However, losses remain modest as firm US labour market data and hawkish remarks from Federal Reserve (Fed) officials cushion the downside.

US Initial Jobless Claims fell to 189K from 195K, below expectations of 196K. The four-week moving average also declined to 194.75K from 197K. Attention now turns to the Nonfarm Payrolls (NFP) report due on Friday.

Cleveland Fed President Beth Hammack said on Thursday that “monetary policy needs to move to a restrictive stance” as inflation has 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.” He described inflation as the Fed’s most important risk and said gradual tightening “makes sense.”

On the Japanese side, minutes of the Bank of Japan’s (BoJ) September meeting, released earlier on Thursday, reinforce expectations of another rate hike in December, lending additional support to the Yen. Members agreed that the bank should keep raising interest rates and reduce the degree of monetary easing.

One member said the BoJ would need to speed up rate hikes if inflation showed signs of overshooting expectations. Many members also warned that rising crude Oil prices keep upside risks to inflation high.