The Zhitong Finance App learned that Goldman Sachs released a report saying that in dealing with market shocks driven by artificial intelligence (AI), the yen is becoming a more effective hedging tool. Changes in Japan's policy background reduce the risk of a sharp depreciation of the yen when global yields rise. Goldman Sachs said that although the global context still indicates that the yen may weaken further, compared with recent years, the yen seems to have become a more attractive hedging tool for procyclical portfolios.
During the collapse of global technology stocks last week, the yen once again showed its traditional safe-haven currency characteristics. The yen rose 0.9% against the US dollar last Thursday, and once again hit its highest level in more than a month on Friday. Goldman Sachs believes that the AI boom has made both US stocks and the US dollar particularly vulnerable to deteriorating economic growth prospects. If there is some kind of shock, causing the stock market and bond yields to fall at the same time, it will form the most favorable market environment for the yen in history. Furthermore, there are early signs that the yen is becoming less vulnerable as global yields rise. Recently, the yen's depreciation response to rising yields has been more limited than in the past 6 to 7 years. Strategists say this may reflect a reduction in depreciation pressure brought about by Japan's domestic policy environment.
This is in stark contrast to 2022, when the Bank of Japan maintained a policy of controlling the yield curve at a time when global borrowing costs soared. Goldman Sachs said that this change in the relationship means that the yen should be a less painful hedging tool, even if the arbitrage remains negative. A more positive domestic policy environment, undervaluation of the yen, and the high risk of currency intervention are also limiting the potential growth of the dollar against the yen, thereby increasing the asymmetry of holding yen as a hedging tool.
In the short term, Goldman Sachs continues to be optimistic about shorting the euro against the yen, saying that the sharp appreciation of the yen lacks an obvious domestic catalyst, and that the Bank of Japan should surprise the market with a hawkish signal when it issues a policy decision on October 30. The threshold is very high. However, from a longer-term perspective, trading USD/JPY should be a more effective means of preventing worsening risk sentiment. Shorting USD/JPY should be the most effective hedge against fluctuations in overall economic growth, or specifically against widespread AI shocks.