The yen held onto gains Friday after a selloff in US technology shares drove investors toward safer assets, a shift that strategists expect will provide further support to the currency. The Japanese currency rose 0.2% to 157.34 per dollar in early Asian trading, after strengthening as much as 0.6% to 157.54 on Thursday, when it outperformed all of its Group-of-10 peers.
The advance came as concerns over the outlook for artificial intelligence investment, following a Democratic sweep in this week's US midterm elections, triggered a sharp selloff on Wall Street. The move adds to signs that the yen may be regaining some of its traditional haven characteristics. It briefly strengthened to 156.08 per greenback last month during an earlier bout of technology-stock weakness before giving back much of the advance. Goldman Sachs Group Inc. strategists have said the Japanese currency is becoming a more effective hedge against an artificial intelligence-driven market shock.
"If the AI trade continues to unwind, investors will be looking for somewhere to go," said Sarah Ying, head of FX strategy at CIBC Capital Markets. "We suspect that demand for haven currencies would rise," including the yen or franc. She expects the yen to strengthen to 148 against the dollar by the end of 2027, a more-than-6% rise from current levels.
The yen has historically benefited during periods of market stress, but that relationship weakened as wide US-Japan interest-rate differentials and persistent Japanese investment overseas encouraged investors to sell the currency even during bouts of risk aversion. Dominic Bunning of Nomura International Plc said the firm remains long on the yen against the dollar, calling it the "consistent best FX trade." He expects further Bank of Japan rate hikes to help sustain the trade, with overnight index swaps pricing in a 76% chance of a hike at the next decision on Dec. 18.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing