BOJ Hike Odds Rise to 76%, Threatening SoftBank's AI Rally

SoftBank Group's stock surged over 5% in Tokyo on Friday as technology shares rallied following softer-than-expected US producer-price data. This move pushed the probability of a Federal Reserve rate increase in September down to about 35%. SoftBank's valuation is increasingly tied to AI assets, including Arm and OpenAI, making easier US rate expectations supportive for the company.

However, investors are becoming more confident that the Bank of Japan will tighten again in September, creating currency risk. The BOJ raised its policy rate to 1% in June, and expectations for another increase are strengthening after yen weakness and elevated inflation. Markets now see a 76% probability of a September hike, up from 24% on July 30.

SoftBank's sensitivity to global technology sentiment has increased as Masayoshi Son concentrated the group around AI. The company's net asset value jumped from about ¥40 trillion at the end of March to ¥72.3 trillion at the end of June, helped by gains in Arm and Intel. However, July's market correction pushed NAV back towards ¥58.3 trillion by August 5.

Lower US rate expectations can support expensive technology assets, improving the backdrop for businesses that make up a larger share of SoftBank's portfolio. Deutsche Bank analyst Peter Milliken has warned about the other side, saying investors were 'vulnerable to a reversal' in either elevated technology prices or the weak yen after the stock's enormous run.