AI TRENDS | Goldman Sachs: Yen Remains Best Currency Hedge Against Further AI Stock Declines

Goldman Sachs strategists say the yen remains the best currency hedge if AI-related stocks fall further, despite its relatively muted response to recent equity weakness. According to Sina Finance, Kamakshya Trivedi and other strategists cited several reasons to remain confident in the yen and cautioned against extrapolating from its weak recent relationship with technology stocks. Since early October, the dollar-yen pair has fallen on average on trading days when the Nasdaq underperformed the S&P 500, including the November 5 stock sell-off; its one-month rolling correlation with daily returns in AI-related stocks has also risen to its highest level this year. The strategists said the sharp market drop on November 5 followed by a rebound the next day suggested positioning adjustments, rather than a fundamental deterioration in AI expectations, may have been the stronger driver. They said that if the global outlook worsens significantly, foreign exchange volatility should rise and the yen should outperform other currencies. They added that shorting dollar-yen should then provide a clearer hedge, although this may require a larger and broader shift in fundamental expectations than has been seen so far.