Yen gains after Bank of Japan holds rates

The yen inched higher on Friday after the Bank of Japan (BOJ) held rates steady as expected, while the dollar tracked Treasury yields lower as a fresh wave of selling in AI shares triggered a flight to safety.

The BOJ left interest rates on hold at 1.25% in a widely anticipated move, but revised up its inflation forecast and stressed anew its readiness to continue pushing up borrowing costs to forestall mounting inflation risks.

Following the decision, the yen strengthened to a high of 157.115 per dollar, erasing most of its losses for the month and putting it on track to end October broadly flat.

Investors are now awaiting governor Kazuo Ueda’s news conference later today for further clues on the policy decision and the future path of interest rates.

“Bottom line: boring hold, hawkish direction,” said Masahiko Loo, chief fixed income strategist at State Street Investment Management in Tokyo.

“The debate is no longer whether the BOJ normalises, but where the terminal (rate) lands. Our base case remains around 1.75% as Japan joins the synchronised global tightening cycle.”

The BOJ wraps up a week of central bank decisions, with the European Central Bank, the US Federal Reserve and the Reserve Bank of New Zealand all leaving interest rates unchanged as they bide their time amid stubborn inflation and tightening financial conditions.

But they are by no means done, with energy prices near multi-month highs and no resolution to the conflict in the Middle East in sight. The Bank of England and the Reserve Bank of Australia will be in focus next week, with investors watching their decisions.

“I think this is just a temporary pause. The global tightening cycle is still going to continue and that will continue to be a driver for FX markets,” said Khoon Goh, head of Asia research at ANZ.

“The big question is as we enter 2027, whether or not we might end up with potentially even more hikes if the inflation stays elevated.”

The euro was last 0.15% stronger at US$1.1197 against the greenback after briefly dipping to its lowest since May 2025 in the previous session, and was on track for a 1.2% monthly drop.

Sterling strengthened 0.2% to US$1.34, and was up 1% for the month.

The Australian dollar was 0.2% stronger at US$0.7042 and was up 1.2% for October. The kiwi also inched up to US$0.5640, flat for the month.

AI jitters

The dollar index, which measures the US currency against a basket of peers, was a shade weaker at 101.77. It was set for a 0.3% gain this month, marking a second straight monthly rise.

The greenback is largely weighed by a dip in US Treasury yields as the safe-haven assets attract new bids. Results from Alphabet earlier in the week rekindled worries about AI spending and pushed broader stock markets lower, triggering a selloff in equities and making safe-haven bonds more attractive.

The yield on the benchmark US 10-year Treasury note was last 4.8958% and that on the 30-year bond fell to 5.2623%, both at their lowest in over a month.

“The market reaction looked different from a conventional energy-driven risk-off episode,” Sim Moh Siong, FX strategist at OCBC, said in a note.

“Rather than supporting the USD and pushing US yields higher, US-centric AI concerns were accompanied by lower Treasury yields and a softer or broadly subdued USD.”

Elsewhere, oil prices remained elevated, with Brent crude futures on track for an 11.5% gain in their fourth straight monthly advance, the longest streak in more than two years.

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