MW The sizzling AI trade is having this surprising effect on global markets

By Joseph Adinolfi

Inflows into U.S. stocks are likely contributing to weakness in the Japanese yen and Korean won, TSLombard strategist says

The artificial-intelligence trade has become so popular that it is causing currencies in Asia to artificially weaken as locals trade their money for dollars, presumably to buy hot AI stocks.

At least that was the conclusion drawn by TSLombard's Rory Green in a report recently shared with MarketWatch.

"AI is sucking in East Asian capital, which, in turn, is weakening local [currency] and, alongside wider global inflows to the U.S., is supporting the dollar, adding to outperformance of the trade," Green said in the report.

If nothing else, this conclusion would help to answer a question that has been bothering so-called macro investors all year: What has been causing the divergence between the Japanese yen and Japanese interest rates?

A number of explanations for the yen's weakness in the face of rising Japanese bond yields have been floated, but Green pointed out that the Japanese currency's latest lows happened to coincide with a record net portfolio outflow from Japanese equity portfolios. This means that as the yen was sliding, Japanese investors were putting more money to work in foreign stocks. Green guessed that much of this money was being used to gain more exposure to the AI investment theme largely playing out in the U.S. market.

"Mrs. Watanabe's love of AI stocks is potentially the biggest factor in current Yen weakness," Green said. "Mrs. Watanabe" is a term used by financial professionals and the press to refer to Japanese retail investors.

A similar dynamic could also be driving weakness in the Korean won, Green said. The dollar has appreciated against both the yen (USDJPY) and won (USDKRW) since the start of the fourth quarter, strengthening by 4.8% against the won and 5.1% against the yen, FactSet data showed. The buck has weakened only modestly against both since the start of the year, even as the euro (EURUSD) has appreciated by 13.5% against the dollar.

-Joseph Adinolfi

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December 17, 2025 11:18 ET (16:18 GMT)

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