Japan's Equities Risk Tactical Correction: Goldman's Moe

Summary

Goldman Sachs' Timothy Moe warns that Japanese equities face a tactical correction risk as speculative yen shorts hit record levels and valuations are elevated, echoing the 2024 carry trade unwind. However, he remains structurally bullish because corporate earnings are intact and have been upgraded on a weaker yen, limiting the pullback's fundamental damage.

• Speculative short yen positioning is back at record levels, similar to the setup before the July/August 2024 carry trade unwind.
• Coordinated US-Japan currency intervention occurred at a vulnerable moment, but fundamentals suggest limited yen upside this time.
• Japanese equities are more vulnerable to a correction now because the market has rallied strongly and valuations are higher than in 2024.
• Goldman's structural view remains bullish: the equity market correction would be tactical, not a fundamental breakdown.
• Corporate earnings have been upgraded by about 2% as the yen has been weaker than expected, with a 10-point USD/JPY move equating to roughly 4% earnings growth.
• The weaker yen supports earnings and keeps the structural equity story intact despite near-term pullback risks.