Goldman Picks the Yen as a Hedge for an AI-Driven Market Shock

Japan’s policy shift, in Goldman Sachs’ view, appears to be lowering the yen’s tendency to slump when global yields rise. The currency now counts, in the bank’s eyes, as effective protection against a shock to artificial-intelligence (AI) markets.

Goldman’s note followed a technology selloff that knocked Japan’s Nikkei 225 well under its all-time high. Last week’s Tokyo losses were led by chip and AI-linked shares.

Tokyo Bruised by AI Selling, Yen Draws Buyers

Nikkei figures show the index closed at 62,693.16 on October 23. That finish is roughly 14% below the record close of 73,007.

The Nikkei dropped 2.65% from its prior close on October 22, ending at its lowest finish since July 30. The Tokyo Stock Price Index (TOPIX) fell 1.14% on the same day. Over the past month, the index has fallen 5.2%.

Bloomberg reported that the yen gained 0.9% against the dollar on October 22 as Treasury yields fell. The following day, it climbed to a high not seen in more than a month.

“The yen now looks like a more attractive hedge for procyclical portfolios than it has been over recent years, despite the global backdrop still arguing for further JPY weakness,” the Goldman team wrote.

Why Goldman Sees the Yen’s Carry Pain Fading

The AI boom, Goldman’s strategists say, has made US stocks and the dollar more vulnerable if growth softens. The yen, the bank argues, has historically done well when equity prices and bond yields fall at the same time.

Domestic policy choices, in Goldman’s telling, explain why the yen has reacted less sharply to climbing yields. Looking further out, the team highlighted one trade.

“Short USD/JPY should be the most effective hedge against general growth wobbles or, specifically, a broad AI shock,” they wrote.

For now, however, Goldman still expects the global backdrop to favor additional yen weakness. Its preferred near-term trade is selling the euro against the yen.

December rate decisions will put that view to the test. A Bloomberg survey put the share of economists expecting the Bank of Japan to hike from 1.25% in December at 83%; the Federal Reserve is likewise seen raising rates that month.

If both central banks delivered quarter-point moves, the US-Japan rate gap would stay roughly unchanged. Whether the yen’s vulnerability has truly lessened would then become visible in its reaction to climbing US yields.

The Federal Reserve and Bank of Japan meetings this week give investors with heavy US tech exposure an early test of the hedge.