The amplification mechanism relies on the scissors effect between accommodative US monetary policy (Fed rate cuts of -25 to -50 bps towards 2026) and a tightening by the Bank of Japan (+25 to +75 bps). This divergence, exacerbated by a 10x leverage for hedge funds, leads to a compression of the carry trade spread, making it deeply negative (-2.5% typical), and causes a sharp appreciation of the JPY.
The cascading dynamic starts with the weakening of the USD driven by Fed cuts, stimulating JPY appreciation.
Simultaneously, BOJ hikes push up JGB yields, forcing a repatriation of Japanese capital and increasing pressure on the JPY. This double compression (spread and FX) generates margin calls on speculative funds (LTV > 85%), forcing a panic selling of assets (US Tech, UST, Crypto), leading to a global liquidity crisis.
Quantitative analysis shows that Fed cuts of -50 bps increase the probability of an accelerated “Unwind” to 68% and push the Value at Risk (VaR) from -$1.2T to -$2.02T USD. The timeline drastically shortens: the Unwind moves from 6-18 months to 2-4 weeks, with a stress peak in Q1 2026. The probability of a systemic crisis reaches 20%.
The impact on US Tech is amplified by this double FX/rate shock, potentially causing valuation depreciations of -25% to -55% for the most exposed sectors (AI).
Critical monitoring indicators are lowered (e.g., USD/JPY below 148 triggers immediate de-risking). The strategic recommendation is to anticipate any dovish scenario from the Fed by immediately reducing risk, increasing liquidity to 25-30%, and strengthening collateral requirements. The Fed risks unintentionally accelerating the liquidity crisis it is trying to avoid.
Contagion in AI financing cannot be understood through valuation levels or even growth rates. It…
Private credit funds face significant 2026 risks from two AI-related channels: disruption to software borrowers…
They allow hyperscalers to expand capacity rapidly while keeping the bulk of associated debt off…
EXECUTIVE SUMMARY. QUANTITATIVE FINANCE Contagion in AI financing cannot be understood through valuation levels or…
Executive Summary With over $315 billion in daily trading volume, stablecoins have become the systemic…
Circular financing in the AI sector refers to a tightly interlinked system of equity investments,…