This week, USD/JPY broke out of its range around ¥158 and fell to the ¥156 range. The move reflected a combination of factors, including lower long-term US yields, higher oil prices, changing trends in AI stocks and developments in European bonds.
After remaining range-bound around ¥158 last week, USD/JPY fell to the ¥156 range this week, with yen appreciation accelerating to a temporary low of ¥156.08 on 23 October. In addition to lower long-term US yields, Japan's inflation conditions and expectations of further rate hikes also contributed to yen strength.
Meanwhile, North Sea Brent crude rose to the $116 range. Despite higher oil prices being a factor that would normally tend to weaken the yen, USD/JPY moved in the direction of yen strength. The market saw not only risk aversion but also a reallocation of funds toward assets able to withstand high interest rates and elevated oil prices.
The valuation of AI-related companies has entered a phase in which both growth prospects and investment returns are being assessed, while concerns over Meta's capital-spending burden and cash flow affected share-price trends. Funds flowed into US Treasuries, while investors demanded high yields on French bonds. German bonds, by contrast, appeared more likely to attract inflows.
Next week is expected to see a concentration of monetary policy decisions from the Federal Reserve, the Bank of Japan and the ECB, along with earnings reports from major companies. Whether the US 10-year Treasury yield rises above 5% could influence the direction of USD/JPY. Developments in oil and conditions in the credit markets for AI-related stocks will also remain key areas of focus.