Just like with the yen, America cannot save the AI bubble

Dr Andy Xie, an independent economist, argues that the US intervention to prop up the Japanese yen will fail within weeks, and that the same fundamental weakness threatens the US AI bubble. He cites Japan's trade deficits, energy costs, and lack of EV competitiveness, predicting the yen will snap back above 160 per dollar. Xie warns that US tech stocks, like the yen, cannot be saved by momentum when fundamentals are broken.

Advertisement Opinion Just like with the yen, America cannot save the AI bubble The Japanese currency and US tech stocks share the same fatal problem: momentum can’t survive broken fundamentals 3-MIN READ3-MIN Listen Dr Andy Xie is a Shanghai-based independent economist specialising in China and Asia, and writes, speaks and consults on global economics and financial markets. In a rare intervention https://www.scmp.com/economy/global-economy/article/3362771/us-has-helped-pull-japans-yen-out-40-year-low-why?module=inline&pgtype=article , the US has propped up the Japanese yen. The move is seen as a bid to hold off a further rise in yields for US government bonds – amid Japan’s sell-off of US Treasuries to fund its shoring up of the yen – a rise that threatens the US artificial intelligence bubble.That the United States bought yen for the first time in decades – coordinating with Japan – had a bigger psychological impact on the market than Tokyo’s interventions alone. But give it three or four weeks and the yen-to-dollar rate is likely to snap back above 160 https://www.scmp.com/opinion/asia-opinion/article/3356413/short-sellers-circle-yen-repeat-1997-asian-crisis-looms?module=inline&pgtype=article .The yen has been fundamentally weakened by a double shock: the rise in Chinese electric vehicles has hit https://www.scmp.com/business/china-evs/article/3359461/chinas-carmakers-are-rewriting-europes-auto-hierarchy-japanese-rivals-lose-ground?module=inline&pgtype=article Japan’s car exports and the energy price spike https://www.scmp.com/week-asia/lifestyle-culture/article/3351540/japans-bathhouses-struggle-stay-afloat-oil-prices-spike-supply-dwindles?module=inline&pgtype=article following the Iran war has hit the wider economy. Technical interventions will not stop its slide.The car industry is Japan’s last economic stronghold but neither the government nor businesses are doing enough to pivot towards electric vehicles, and Chinese competition will only grow. Unless another export industry rises in replacement, the yen can only depreciate. Energy import costs are also rising rapidly in Japan, which depends on the Middle East for 90-95 per cent of its oil. The unexpectedly large trade deficit in June is an indicator of things to come. Tokyo is obviously running down its reserves to keep the economy afloat. As the Iran war drags on, the odds are rising that oil infrastructure in the Middle East will be destroyed – which would leave Japan’s economy in mortal peril. Starting January, China has also banned https://www.scmp.com/economy/global-economy/article/3338907/china-bans-exports-military-related-goods-japan-dispute-intensifies?module=inline&pgtype=article “dual-use” exports to Japan in opposition to its remilitarisation, and has put dozens https://www.scmp.com/economy/china-economy/article/3358686/china-adds-20-japanese-entities-its-export-control-list?module=inline&pgtype=article of Japanese companies on the export-control list. The Japanese economy faces a huge downside in the coming months.Japan has essentially no room to raise its interest rates to defend its currency. National debt, at about 13.5 trillion yen US$84.8 billion , is already more than twice the gross domestic product. To properly defend the yen, Japan’s rates will need to match US ones https://www.scmp.com/news/world/united-states-canada/article/3362310/us-federal-reserve-holds-interest-rates-steady-despite-warshs-inflation-vow?module=inline&pgtype=article?module=inline&pgtype=article , which are 2-3 percentage points higher, but the resulting rise in interest payments on national debt will trigger a fiscal crisis.Advertisement Select Voice Select Speed 1.00x