Yen rallies as global risk aversion rises

The Japanese yen surged on October 22, 2026, as investors sought safety, sending USD/JPY (USDJPY) toward the 157.00 level in its strongest daily rally in about a month. The pair lost nearly 0.65% on the day, trading around 157.27 at one point.

The yen’s gains extended beyond the US dollar, with the Japanese currency advancing as much as 1.2% against the euro and pushing higher versus the pound and Australian dollar. The move marked a sharp break from the tight trading range the yen had held through much of October.

The yen’s rally coincided with a selloff in global and Asian equity markets that reinforced a broader risk-averse shift. Growing concerns over AI-related investments weighed on risk appetite, adding to worries about fragile equity markets, high crude prices, war in the Middle East and fiscal risks in Europe.

In this environment, investors favoured traditional safe-haven currencies such as the yen and the Swiss franc. At the same time, the US dollar lost upward momentum and traded more like a risk currency, underperforming alongside the decline in equities. The US Dollar Index (DXY) hovered around 101.75 after touching a three-week low of 101.45.

Risk-off positioning also boosted demand for government bonds, pushing yields lower across major economies and narrowing the interest-rate gap between the United States and Japan. The benchmark 10-year US Treasury yield stood around 5.04%, down 1% on the day, while Japan’s 10-year government bond yield traded near 2.86%, down 0.50% on a daily basis.

The decline in yields in both markets helped support the yen by reducing some of the appeal of higher-yielding US assets over Japanese securities. Yen strength overnight was closely linked to this move lower in US, UK and Japanese yields, with Treasuries, gilts and Japanese government bonds all benefiting from safe-haven demand.

Analysts noted that expectations for the Bank of Japan’s policy outlook are coalescing, with some of the earlier upside risks to Japanese monetary tightening seen as diminished. Standard Chartered expects the BoJ to keep the policy rate unchanged at 1.25% at its meeting on October 29-30, following a 25 basis point hike in September, while maintaining a clearly hawkish tone.

Standard Chartered says the debate is shifting from whether the BoJ will hike again to when the next increase will occur. Standard Chartered says December is a “live meeting”, but January 2027 remains its base case for the next rate hike.

Recent trading has seen speculative short yen positions gradually rebuilt, leaving room for a sharper move when risk sentiment turned. The latest rally indicates that, despite Japan’s still-wide yield gap with other major economies and concerns over its debt burden, the yen retains its role as a key safe-haven currency when global risks intensify.

At the same time, record foreign inflows into riskier US equities and corporate bonds in recent weeks underline how quickly sentiment had previously swung toward risk-taking. The sudden pivot back to safety, with the yen and Swiss franc at the forefront, highlights the sensitivity of currency markets to shifting views on AI-driven returns, energy prices and geopolitical tensions.