Yen Surges to Five-Week High as Tech Rout Spurs Haven Demand

Amid a sharp selloff in global tech stocks, the Japanese yen has rallied to its strongest level against the US dollar in over five weeks. Traders are seeking safety in haven currencies due to concerns over the US tech sector's exceptionalism.

Yen Strengthens, US Treasuries Rally

The Japanese currency surged by 1.5% to 153.72 against the dollar, marking its most significant intraday gain in four months. The gains were sustained after the opening of equity markets in New York. The Swiss franc also climbed 1%. Meanwhile, the yield on US 10-year notes dropped by 12 basis points to 4.50%.

AI Concerns and Profit-Taking

The rally in the yen and other haven assets was triggered by news of a new artificial intelligence model from Chinese startup DeepSeek, raising questions about the dominance of US tech companies. This prompted profit-taking in tech stocks and a rush to safe assets.

Yen Options Market Reflects Demand

The yen's surge was accompanied by increased demand in the options market. Volumes doubled compared to recent averages, and one-week hedging costs spiked.

Strategists See Further Yen Appreciation

Analysts predict that the yen has more room to gain in light of the Bank of Japan's recent interest rate hike and future policy path. This could narrow the yield gap between Japan and other major economies. Hedge funds have reduced their bearish bets on the yen, which has further supported the currency.

Bloomberg Strategists' Outlook

Bloomberg strategists highlight the potential for carry trade unwinds as the Bank of Japan continues raising rates. Jane Foley of Rabobank anticipates that the yen will strengthen to 145 against the dollar within the next 12 months.

Conclusion

The yen's surge reflects increased risk-aversion in markets due to concerns over the US tech sector and the potential for a reassessment of AI investments. As the Bank of Japan's policy path unfolds, the yen is expected to continue benefitting from carry trade unwinds and its status as a haven asset.