Behind the AI stock market bubble lies a weak yen
The world might be dividing into rival camps and competing trade blocs, but international capital flows remain footloose and fancy free. In so doing, they pose a threat to what remains of stability in the real economy. A good example of this growing potential for international contagion is the influence of the weak yen on global stock prices. The Japanese currency is expected to remain weak for…
The global economic landscape is increasingly influenced by the yen's weakness, which in turn feeds a stock market bubble, particularly in AI-related companies. This phenomenon, often overlooked, is fueled by speculative borrowing in yen to invest in stocks and bonds. The yen's undervaluation, sustained by this "carry trade," is propping up long-duration risk assets, making financial markets vulnerable to severe correction if interest rates rise.
The Bank of Japan has acknowledged the yen's impact on inflation expectations but is unlikely to intervene heavily. Other experts remain cautious about the carry trade's future, while the IMF emphasizes the importance of international coordination to address domestic imbalances. Despite the apparent resilience of global finance, the interconnectedness of markets means that even modest corrections could have significant consequences.
The need for global leadership and policy cooperation is more urgent than ever, but the current political climate presents significant challenges.
Written by urgent.news from South China Morning Post's reporting — not their text. Machine-written; read the original for the full account.
