Yen has brief gain after BOJ, while AI jitters weigh on dollar

By Jiaxing Li

HONG KONG, Oct 30 (Reuters) - The yen gained briefly after the Bank of Japan held rates but revised up an inflation forecast, while the dollar tracked Treasury yields lower as a fresh wave of selling in AI shares triggered a flight to safety.

The BOJ left its main rate at 1.25% in a widely anticipated move, but stressed that its policy has entered a new, more hawkish phase open to raising rates once every few months.

The yen strengthened to a high of 157.115 per dollar, but later gave up those gains to trade steady at 157.67. It is on track to end October broadly flat.

The brief nudge higher was due to the BOJ lifting its inflation forecast for the next financial year to 2.6% from 2.4%, as well as a dissenting opinion from one board member calling for a hike, said Shuhei Uehara, a foreign exchange analyst at Gaitame.com Research Institute.

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 flat at $1.1178 against the greenback after briefly dipping to its lowest since May 2025 in the previous session, and was on track for a 1.3% monthly drop.

Sterling strengthened 0.1% to $1.3392, and was up 1% for the month.

The Australian dollar was little changed at $0.7028 , poised for a 1.2% gain for October. The kiwi stood at $0.5634, flat for the month.

NOT THE SAME AS AN ENERGY-DRIVEN RISK-OFF EPISODE

The dollar index , which measures the US currency against a basket of peers, was a shade weaker at 101.85. It was set for a 0.3% gain this month, marking a second straight monthly rise.

The greenback was pulled lower by a dip in US Treasury yields as the safe-haven assets attract new bids. Results from Alphabet GOOGL.O this week rekindled worries about AI spending, triggering a selloff in equities.

The yield on the benchmark US 10-year Treasury note was last at 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."