USD/JPY moves lower amid AI unease before next week’s central bank meetings

The 157 level is coming into view for USD/JPY as the AI sell-off puts pressure on the U.S. dollar and supports the yen. Next week's major central bank meetings are also drawing market attention.

Lower Treasury yields and questions about whether debt-financed AI infrastructure is sustainable have accompanied a slide in the U.S. dollar to a three-week low.

Thursday's declines in U.S. stock futures are being led by the tech-heavy Nasdaq. Investors are digesting the latest earnings, which have not allayed anxiety about the scale of debt-financed AI investment.

Markets are also questioning whether an AI boom will underpin U.S. economic resilience, with strong growth allowing U.S. interest rates to remain elevated for longer. Doubts about that scenario are contributing to the dollar's losses.

At 0.65 on a 30-day rolling basis, the correlation between the U.S. dollar and U.S. stocks is unusually high. That positive relationship contrasts with their more typical pattern of moving in opposite directions. Further pressure on both U.S. equities and the dollar from AI investment concerns could leave USD/JPY vulnerable to additional losses.

Initial jobless claims stand out on a relatively sparse U.S. economic calendar, ahead of next week's FOMC interest rate announcement on Wednesday, the 28th. An October rate rise is not expected from the Fed, although market pricing implies a 95% chance of a further increase before year-end.

Safe-haven buying lifts yen before inflation release

A sharp advance has taken the Japanese yen to its strongest level in three weeks, following largely range-bound trading through most of October. The currency is emerging as the preferred destination for safe-haven demand.

Support for the yen also comes from hawkish statements by Bank of Japan officials. Speaking yesterday, Bank of Japan Deputy Governor Ryozo Himino observed that underlying inflation was drawing closer to the bank's 2% target and warned against an unduly slow adjustment of policy. His remarks added weight to the hawkish message delivered earlier in the week by Governor Ueda.

Friday's national inflation figures will provide the next point of focus, with core national CPI forecast to increase from 1.7% to 2.1%. Such a reading would suggest mounting domestic inflationary pressure as higher energy costs feed into the wider economy. Stronger inflation could encourage more hawkish expectations for the BoJ, supporting the yen through a narrowing of the Fed-BoJ interest rate differential.

An October pause in interest rates is expected from the Bank of Japan, followed by an increase to 1.5% in December that would preserve its quarterly tightening pace.

USD/JPY technical analysis: sellers press below key support

The 200 EMA has given way after USD/JPY spent a period consolidating above it, leaving the pair heading towards 157. With this key support breached and the RSI below 50, sellers retain hopes of an extended decline.

A breach of support at 156.75 is the next objective for sellers. That would put the 155 support zone in view, followed by the September low at 153.

For a rebound, the first hurdle is the 200 EMA at 157.75, with the 50 EMA at 158 beyond it. The October high at 159 provides a further resistance level; a move through it would mark a higher high and direct attention to the 160 resistance zone.