According to Bloomberg, the yen surged to its highest level in over two months against the dollar on Thursday, driven by traders unwinding previous positions to favor the Japanese currency. This shift has also impacted gold and bitcoin, which saw declines as a result of the yen's newfound strength.

The yen's rise has introduced additional volatility to global markets, already unsettled by diminishing enthusiasm for the artificial intelligence boom that had fueled Wall Street this year. The yen has appreciated over 6% against the dollar since hitting a multi-decade low earlier this month. However, this momentum will be tested in the coming week with new US economic data and meetings from both the Bank of Japan (BOJ) and the Federal Reserve.

The yen's resurgence is partly due to a significant retreat in global markets. Other Asian currencies, particularly the Korean won and offshore yuan, have also been supported. Swaps markets are now pricing in a 75% chance of a BOJ rate hike next Wednesday, up from 44% earlier this week. ING strategists noted that the unwinding of yen shorts is contributing to a global risk-off environment.

Reflecting the growing caution against riskier assets, Bitcoin fell over 3% on Thursday, while the MSCI Asia Pacific Index for equities dropped almost 2%. Gold, often seen as both a safe-haven asset and a target for leveraged bets, declined by about 1%. In the currency market, China’s offshore yuan rose 0.8% against the dollar, benefiting from the yen’s strength despite interventions from the country’s central bank. The current low liquidity environment, exacerbated by the summer season, could lead to further cross-asset liquidations if the yen continues its upward trajectory.