Yen shines as AI jitters spur safe-haven rush

On Friday, the Japanese yen strengthened to 156.28 per dollar, marking its highest level in over a month. This rise was fueled by safe-haven demand due to renewed risk aversion, which sent US Treasury yields plummeting and pushed the dollar to a nearly three-week low. The currency market fluctuations were primarily driven by doubts surrounding the artificial intelligence (AI) spending surge, as Brent crude futures remained above $110 per barrel. This situation indicated that concerns about economic growth outweighed inflation worries.

The Japanese yen saw a 0.3% gain to reach 156.28 per dollar, with analysts anticipating a 1% increase for the week, its strongest weekly rise since early September. Meanwhile, the US dollar index (USD) hovered near 101.52, its lowest level since the start of the month, after falling to 101.44 on Thursday. US 10-year Treasury yields hovered around a one-month low of 4.953%, following a significant drop on Thursday amid renewed concerns about the sustainability of the AI boom and its potential impact on inflation, fiscal deficit, and AI trends.

The risk-off environment has put pressure on the Federal Reserve to raise interest rates next week. However, even with this, analysts do not expect the 10-year yield to surpass the 5% level just yet, given the current inflation, fiscal deficit, and AI trends. Meanwhile, rising demand for safety across different markets led to varying beneficiaries.

The yen was favored by AI jitters, the Canadian dollar gained support from Middle East tensions, the Norwegian krone benefited from rising oil prices, while the Swiss franc was bolstered by French fiscal stress. For the US dollar, AI has emerged as a significant double-edged macro risk.