Yen shines as AI jitters spur safe-haven rush

The Japanese yen surged to its strongest level in over a month on Friday, fueled by a rush to safe havens due to renewed risk aversion. This shift was compounded by a drop in US Treasury yields, which dragged the dollar to its weakest point in nearly three weeks. Market doubts surrounding the AI spending boom compounded the safe-haven sentiment.

The yen strengthened by 0.3% to 156.28 per dollar, marking its strongest weekly gain since early September. The dollar index fell to 101.52, its lowest level since the start of the month, following a drop to 101.44 on Thursday. US 10-year Treasury yields hovered near a one-month low of 4.953%, following a decline on Thursday amid renewed concerns about the sustainability of the AI boom.

Analysts cautioned that while yields may stay below 5%, they remain optimistic about a potential return above this level, driven by factors such as inflation, fiscal deficits, and AI trends. The risk-off environment dampened the Federal Reserve's interest in raising rates next week. Still, analysts advised against accumulating duration just yet.

Brent crude futures climbed above $114 per barrel, fueled by Houthi attacks on Saudi Arabia, intensifying demand for safety and benefiting currencies tied to Middle East tensions. Meanwhile, Japan's core consumer inflation exceeded the central bank's 2% target in September, signaling growing price pressures and potentially prompting an interest rate hike.

Major currencies fared differently based on risk factors; while the yen benefited from AI jitters, the Canadian dollar and Swiss franc gained from Middle East tensions and rising oil prices, respectively. The euro weakened, pressured by concerns over France's debt burden and the resilience of heavily indebted euro-area countries.

The European Central Bank is expected to keep its key rate at 2.5% during its upcoming meeting. Meanwhile, the Australian and New Zealand dollars held steady, with slight gains against the US dollar.