Goldman Sachs has identified the yen as an increasingly attractive hedge against potential market shocks driven by artificial intelligence. The bank's strategists, including Kamakshya Trivedi, noted in an Oct 23 report that changes in Japan's policy landscape have reduced the risk of the yen weakening sharply when global yields rise. This shift makes the yen a more effective safeguard for portfolios exposed to market cycles, despite broader trends still favoring yen weakness.
The yen demonstrated its haven characteristics during last week's global tech stock sell-off. On Oct 22, it surged 0.9% against the US dollar and briefly hit its strongest level in over a month on Oct 23. This rally was fueled by concerns over the AI investment boom, which triggered a drop in equities and a surge in Treasury yields. The yen later gave back some gains as US yields stabilized.
Goldman Sachs argues that the AI boom has left US equities and the dollar particularly vulnerable to growth outlook deterioration. A scenario where stocks and bond yields fall simultaneously would historically benefit the yen. The bank also notes early signs that the yen is becoming less sensitive to rising global yields, likely due to reduced depreciation pressure from Japan's domestic policy settings.
In the near term, Goldman favors selling the euro against the yen, citing limited catalysts for significant yen appreciation and a high bar for the Bank of Japan to deliver a hawkish surprise at its Oct 30 policy decision. Over the longer term, however, the strategists view shorting USD/JPY as the most effective hedge against growth wobbles or an AI-driven shock.