Yen Surges on Safe-Haven Demand as AI Stock Sell-Off Roils Markets

The Japanese yen is poised for its strongest weekly gain in over a month as a sharp sell-off in technology stocks, fueled by doubts over the artificial intelligence boom, prompted a flight to safety among investors. The euro came under pressure from rising French borrowing costs, while the U.S. dollar's traditional role as a primary haven was muted.

Flight to Safety Reshuffles Currencies

A broad-based downturn in tech shares this week, triggered by questions over the profitability of AI investments, has shifted foreign exchange dynamics. The U.S. Dollar Index, a measure of the greenback against a basket of currencies, edged up 0.1% to 101.86 but remained near a three-week low and was largely flat for the week.

Instead of flocking to the dollar, the risk-off sentiment reinforced market bets on a more dovish Federal Reserve. This pushed down U.S. Treasury yields, with the benchmark 10-year note yield falling toward a near one-month low of 4.953%. According to the CME FedWatch Tool, traders see a high probability that the Fed will hold interest rates steady at its next meeting.

Yen and Euro on Divergent Paths

The yen emerged as the primary beneficiary of the risk-averse mood. The dollar fell to 156.06 yen, the yen's strongest level in over a month, before paring some losses to trade around 157. The USD/JPY pair is on track for a weekly decline of approximately 0.6%.

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Supporting the yen's strength, data released Friday showed Japan's core consumer price index (CPI) rose 2.1% year-over-year in September, accelerating from August's 1.7% and moving back above the Bank of Japan's 2% target. This reading adds complexity to the central bank's upcoming policy decision.

In contrast, the euro has struggled, falling 0.15% against the dollar to $1.1200 and tracking a 0.42% weekly loss. The single currency also hit its lowest level against the yen in a year. The weakness was driven by a sell-off in French government bonds, which sent the country's risk premium to its highest level since the 2011 sovereign debt crisis. A surprise contraction in French business activity for October added to the pressure.

Broader Pressures and Central Bank Watch

Adding to market anxiety, rising energy prices are complicating the global inflation outlook. Brent crude traded above $114 a barrel following a 4% surge on Thursday amid fears of supply disruptions. This trend is a headwind for energy-importing economies like Japan.

Investors are now turning their attention to a series of major central bank meetings next week. The Federal Reserve, European Central Bank, and Bank of Japan are all set to announce policy decisions, with traders closely watching for any changes in tone regarding future interest rate paths.