The Japanese yen weakened again, approaching the 158-per-US-dollar level during Wednesday’s trading, erasing most of the gains recorded the previous week. This pressure stems from growing optimism surrounding the artificial intelligence (AI) sector, which has fueled a "risk-on" sentiment and dampened demand for the yen as a safe-haven asset.
Positive sentiment toward the technology sector intensified after South Korean chipmaker SK Hynix reported solid third-quarter results and announced increased shareholder returns. This performance was driven by high demand related to AI, boosting investor appetite for riskier assets.
Domestically, market attention is focused on the Bank of Japan’s (BOJ) policy decision this week. While the BOJ is expected to keep interest rates unchanged, investors will be watching closely for any signals regarding a potential rate hike in December, given the persistent inflationary pressures.
Recent data shows that Japan’s service-sector inflation indicator rose by 3.7% year-on-year in September—the highest level since June 2024. This increase is attributed to persistently high costs for labor, transportation, and fuel, providing the BOJ with a rationale to consider further policy normalization.
The future trajectory of the yen will depend heavily on communications from the BOJ and decisions from other major central banks. A stronger signal of a potential rate hike in Japan could help the yen recover, whereas a cautious stance from the BOJ—combined with a strong US dollar—could keep the USD/JPY pair at elevated levels.