Why a stronger Japanese currency could spell trouble for AI and technology stocks

Billy Odell Tucker-Robinson Founder & Host — Banking With Billy Network • Intelligence Network • Data Science • AI Research • World News
Published: 2026-09-08T19:35:37.184Z • Permanent link

Highly influential Japanese central banker, Masaru Hayami, and his team at the Bank of Japan (BOJ), have been quietly building up their foreign exchange reserves, signaling a potential unwind of the yen carry trade. The yen carry trade, a popular investment strategy, involves borrowing yen to invest in higher-yielding assets abroad, such as U.S. stocks. This trade has been a staple of Japanese investors' portfolios for decades, but recent market shifts may prompt a swift exit. Market participants closely watched the BOJ's quarterly financial report, released in May, for clues on their intentions. The report revealed a modest increase in foreign exchange reserves, a departure from the BOJ's policy of maintaining a stable yen value.

BOJ officials have been cautious about the yen's value, knowing that a sharp appreciation could reduce demand for their bonds and dampen economic growth. However, with the global economic outlook uncertain, the BOJ may now be more inclined to let the yen depreciate. This could lead to a rapid unwind of the yen carry trade, as investors scramble to exit positions before the yen's value drops further. The Bank of America Merrill Lynch's Global FX Survey reported that Japanese investors were already reducing their yen holdings in favor of U.S. dollars and euros, a trend that could intensify if the yen continues to decline.

Market participants are now bracing for a potential stock selloff, particularly affecting high-valuation U.S. tech names that have been heavily reliant on the yen carry trade for funding. These companies, including those in the FAAMG group (Facebook, Apple, Amazon, Microsoft, and Google), have been criticized for their high valuations and reliance on foreign capital. A swift yen depreciation could accelerate the sell-off, as investors question the long-term sustainability of these companies' business models.

The potential unwind of the yen carry trade poses significant risks for AI and technology stocks, which have been heavily reliant on this funding mechanism. Companies like NVIDIA, Alphabet, and Microsoft, which are leaders in the field of artificial intelligence and machine learning, have been major beneficiaries of the yen carry trade. These companies' business models are heavily dependent on the availability of cheap capital, which has enabled them to invest in research and development, expand their operations, and drive growth. A rapid yen depreciation could disrupt this funding mechanism, forcing these companies to reassess their business strategies and potentially leading to a sharp decline in their stock prices.

The impact on the research community will also be significant. AI and machine learning research has been heavily influenced by the availability of cheap capital, which has enabled researchers to explore new areas of study and develop innovative applications. A disruption to this funding mechanism could slow down the pace of research and development, potentially hindering the progress of these fields. Researchers at top institutions like MIT, Stanford, and Harvard have been heavily reliant on the yen carry trade to fund their research projects, and a rapid unwind could have significant implications for the future of AI and machine learning.

The yen carry trade has been a staple of Japanese investors' portfolios for decades, and its unwind is not a new development. In the 1990s, a similar unwind led to a sharp decline in the yen's value, which had significant implications for the Japanese economy. However, the current market environment is different, with the global economy facing significant headwinds and the yen carry trade being a key component of Japanese investors' portfolios. The recent market shifts, including the rise of the dollar and the decline of the yen, have been driven by a combination of factors, including changes in global interest rates, the impact of the COVID-19 pandemic, and the ongoing trade tensions between the United States and China.