Aug. 1 at 2:04 AM
Bank of America warned that Japanese equities face three key headwinds in August: rising oil prices, a more hawkish Federal Reserve, and the potential unwinding of crowded positions in AI stocks and the yen. The bank said higher crude prices could fuel inflation, strengthen the case for additional Fed rate hikes, pressure richly valued technology shares, weaken the yen, and push USD/JPY toward 165, increasing the risk of Japanese currency intervention.
BofA expects low seasonal liquidity to keep markets volatile through mid-August, especially if AI-related positioning and short yen trades unwind. However, the bank believes conditions could stabilize if upcoming U.S. inflation and labor data are benign, allowing Japanese stocks to recover later in the year. Strategists recommend maintaining exposure to AI while avoiding overvalued names, favoring companies tied to data center investment—including optical communications, networking infrastructure, semiconductor materials.
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