OCBC Group Research said the yen may serve as a hedge when U.S. markets weaken over artificial intelligence concerns, adding nuance to the bank’s view that AI remains a net support for the dollar.
In its Oct. 26 FX Weekly, OCBC strategists Sim Moh Siong and Christopher Wong said anxiety about AI had weighed on longer-term U.S. Treasury yields the previous week. That decline offset some dollar support from higher oil prices, while the yen outperformed during the market jitters.
OCBC said it was too early to conclude that the AI-related sell-off marked a sustained reversal. The bank continued to see AI as a net positive for the dollar, but said U.S.-originating market stress could make the currency’s relationship with AI developments less one-sided.
The bank also took a more constructive medium-term view of the yen, citing Bank of Japan tightening and the prospect that Japanese investors will allocate more assets domestically. The BOJ’s policy guideline is to keep its uncollateralized overnight call rate around 1.25%. Its next meeting is scheduled for Oct. 29-30, with a policy statement due Oct. 30.
In Tuesday trading, Reuters reported the yen was down 0.1% at 157.66 per U.S. dollar after reaching a one-month high the previous week. Reuters attributed the decline to improved risk appetite ahead of central bank meetings. EconoTimes previously covered yen gains amid AI spending worries.
The Federal Reserve meeting is scheduled for Oct. 27-28, followed by a European Central Bank decision on Oct. 29 and the BOJ meeting on Oct. 29-30. OCBC expected all three to hold rates, a forecast made before the decisions.