Relationship Between US Tech Stocks and Japan Yen

Weaker yen make higher US tech stocks valuation. The wide differential between US and Japanese real interest rates has made yen financing for US assets cheap, boosting tech valuations. Yen carry trade is a key factor driving the US tech stock rally, with the biggest risk being a stronger yen. Higher real rates in Japan could strengthen the yen and deflate US tech stocks. If you hold US tech positions, you can hedge this risk by going long on the yen.

The Bank of Japan (BOJ) is expected to maintain its ultra-low interest rates in the near term, but may gradually shift to a less dovish stance due to easing fears of a U.S. recession and the need to counter yen depreciation. BOJ will continue its policy normalization process with potential rate hikes, though any changes will be cautious to avoid market instability. The BOJ's outlook will depend on domestic economic indicators, such as wage growth and inflation, which are showing signs of recovery, allowing for possible incremental rate increases into 2025.