The Japanese yen strengthened significantly against all major currencies on Thursday, driven by a surge in risk aversion across global markets. The USD/JPY pair dropped towards 157, marking its lowest level in three weeks. This move was fueled by concerns over AI valuations, rising oil prices, and political instability in France, which prompted investors to seek safety in the yen. Falling US Treasury yields also narrowed the yield differential between the US and Japan, further boosting demand for the yen.
EUR/JPY fell by 1% to multi-month lows, while NZD/JPY led the declines with a 1.1% drop, testing the 89 handle. USD/JPY fell by 0.8%, and GBP/JPY erased four days of gains, closing below 210. CHF/JPY also declined as investors favored the yen over the Swiss franc, potentially reinforced by the Bank of Japan's tightening bias ahead of next week's meeting.
Today's Japanese inflation report is a key focus, with nationwide core CPI expected to accelerate to 2.1% year-over-year from 1.7%, surpassing the BOJ's 2% target. Tokyo's September inflation figures already indicated renewed price pressures, with core-core CPI rising to 3.0% year-over-year. A stronger-than-expected national CPI report could reinforce expectations of further BOJ tightening, providing additional support for the yen.
The BOJ is widely expected to hold rates at 1.25% next week, but nearly 70% of economists anticipate another 25 basis point hike by year-end, with December being the favored month. Updated inflation projections and Governor Ueda's guidance will be closely watched for clues on the timing of further tightening.