The Japanese yen strengthened significantly against all major currencies on Thursday as global markets experienced a surge in risk aversion. The USD/JPY pair dropped towards 157, marking its lowest level in three weeks. This movement was driven by concerns over AI valuations, rising oil prices, and political instability in France, which prompted investors to seek safe-haven assets like the yen. Additionally, falling US Treasury yields 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 declined by 1.1%, testing the 89 handle. USD/JPY dropped by 0.8%, and GBP/JPY erased four days of gains, closing below 210. CHF/JPY also fell as investors favored the yen over the Swiss franc, potentially due to the Bank of Japan's tightening bias ahead of next week's meeting.
Today's focus is on Japan's inflation report, with nationwide core CPI expected to rise 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 accelerating 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 maintain its current rate of 1.25% at next week's meeting, 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.