By Dhaval Joshi of BCA Research
Executive Summary
- The analysis of price complexity strongly suggests that the ‘yen carry trade’ and the AI bubble are one and the same trade, premised on three conditions:
- Japanese interest rates must not increase; the yen must not appreciate; and US superstar stocks must continue delivering high and stable returns.
- But on a cyclical (6-12 month) horizon, it is highly unlikely that all three legs of the yen carry trade will stay stable.
- Once one leg buckles, the whole trade will collapse. Therefore:
- Underweight US superstar stocks.
- Underweight Japanese rates.
- And overweight the yen.
