The Japanese yen rose in Asian trading on Tuesday against a basket of major and minor currencies, moving into positive territory against the US dollar and pulling away from ten-month lows, supported by bargain-hunting and ongoing speculation that authorities may intervene to support the currency.

With the chances of a Bank of Japan rate hike in December still weak, investors are awaiting further clues on the path of policy normalization heading into the new year.

Price Overview

• USD/JPY fell more than 0.2% to 156.56 yen, down from an opening level of 156.91, after touching a high of 156.98.

• The yen ended Monday down 0.4% against the dollar, following a 0.7% gain on Friday as it recovered from last week’s ten-month low at 157.89.

Japanese Authorities

Takuji Aida, a member of a key government advisory panel from the private sector, said on NHK TV on Sunday that Japan is capable of intervening effectively in the currency market to offset the negative economic impact of a weak yen.

Finance Minister Satsuki Katayama said on Friday that FX intervention remains an option to counter excessive volatility and speculative moves, keeping traders on alert for potential yen-buying action by Japanese authorities.

Views and Analysis

• Nick Rees, head of macro research at Monex Europe, said intervention could help slow the dollar’s rise against the yen but is unlikely to fully reverse it, given that the underlying drivers are not expected to change soon.

• Matthew Ryan, head of market strategy at Ebury, said USD/JPY is not far from levels that could trigger direct intervention, with 160 seen as a key threshold for authorities.

• Some market analysts believe official intervention—similar to last year and 2022—remains possible. Traders expect potential action between 158 and 162 per dollar, though few expect it to be highly effective.

Japanese Interest Rates

• Market pricing for a 25-basis-point rate hike by the Bank of Japan in December remains around 35%.

• Investors await upcoming data on inflation, unemployment, and wage growth to reassess those odds.

Gold prices rose on Monday as the dollar held steady against most major currencies, while speculation over the Federal Reserve’s policy path continued to shape market sentiment.

Federal Reserve Governor Christopher Waller said rates should be cut at the December meeting, although he noted that the January decision could be more difficult due to the backlog of delayed data.

John Williams, President of the New York Fed, said on Friday that the central bank still has room to lower interest rates.

“I see monetary policy as still moderately restrictive, though slightly less so than before our recent actions. Therefore, I still see scope for an additional near-term adjustment to the target range for the federal funds rate, bringing policy closer to neutral and maintaining balance between our two goals,” Williams said.

According to CME FedWatch, traders now assign a 79% probability to a 25-basis-point rate cut in December, up from roughly 42% a week earlier.

Meanwhile, the dollar index stabilized at 100.1 by 20:13 GMT, after touching a high of 100.3 and a low of 100.01.

Later this week, the US will release producer price data, retail sales figures, and initial jobless claims.

In trading, spot gold rose 1% to 4,120.2 dollars an ounce by 20:14 GMT.

Few figures embody the AI frenzy more than Jensen Huang, the CEO of chip giant Nvidia, whose market value has surged by 300% over the past two years.

Amid this feverish momentum, Huang sought in his first remarks during the latest earnings call to calm concerns over an inflating bubble.

“There’s a lot of talk about an AI bubble… but from our perspective, we see something completely different,” he told shareholders.

As the debate over an AI bubble deepens, it’s clear that those with the most to gain from continued AI spending are the ones dismissing fears of excess and speculative overreach.

David Sacks, investor and head of the White House AI Office, said on the All-In podcast: “I don’t think we’re at the start of a collapse cycle… we’re in a boom, in a super-cycle of investment.”

Prominent investor Ben Horowitz said: “The idea that we’ll face a demand problem in five years sounds absurd to me… if you look at demand, supply, and valuations relative to growth, this doesn’t look like a bubble at all.”

And in an interview on CNBC, JPMorgan’s Mary Callahan Erdoes called the characterization of massive AI inflows a “crazy idea,” adding: “We are on the cusp of a major revolution that will transform how companies operate.”

But a closer look reveals fragile foundations

Still, some observers argue that what’s happening in the AI industry today is genuinely worrying.

Investor and MIT Digital Economy researcher Paul Kedrosky says the vast sums flooding into this “revolution” are still fundamentally speculative.

“The technology is extremely useful, but the pace of improvement has slowed dramatically… so the belief that the revolution will continue at the same momentum over the next five years is unfortunately mistaken,” he said.

Massive inflows… and questionable growth

The scale of current spending is staggering even for financial analysts.

OpenAI — the creator of ChatGPT, which ignited the AI race in late 2022 — says it generates $20 billion in annual revenue and plans to spend $1.4 trillion on data centers over the next eight years. This level of investment requires continuous growth in demand for its services.

But doubts are rising: research increasingly shows that most companies are not seeing meaningful financial benefits from chatbots, and that only about 3% of people pay for AI tools.

MIT economist and 2024 Nobel laureate Daron Acemoglu said: “I have no doubt that real value-adding AI technologies will emerge over the next ten years, but much of what we are hearing from the industry right now is exaggerated.”

Even so, Amazon, Google, Meta, and Microsoft together are expected to inject nearly $400 billion into AI this year, mostly to fund data centers. Some of these firms plan to allocate up to 50% of their cash flow to building these facilities.

As Kedrosky put it: “For this level of spending to make sense, every iPhone user in the world would have to pay more than $250… and that’s not going to happen.”

To avoid draining liquidity, companies like Meta and Oracle have started turning to debt and private financing to support the data-center boom.

Risky financing… and the return of special-purpose vehicles

Goldman Sachs analysts found that hyperscalers — companies with massive cloud and computing capacity — added $121 billion in new debt over the past year, an increase of more than 300% versus the sector average.

Analyst Gil Luria at D.A. Davidson says tech giants are using special-purpose vehicles (SPVs) to obscure debt exposure on their balance sheets.

One example: a data center in Louisiana financed by Blue Owl Capital in partnership with Meta. Blue Owl took out a $27 billion loan, while Meta enjoys the capacity without showing the debt. But if demand weakens and the center stalls, Meta will face multibillion-dollar obligations.

Luria said: “The term SPV surfaced 25 years ago with a small company called Enron… today companies are not hiding it, but that doesn’t mean it’s a sustainable model for the future.”

Huge spending built on expectations that may be illusions

Companies are projecting massive AI revenues in the coming years. But Morgan Stanley estimates that big tech will spend around $3 trillion on AI infrastructure by 2028 — and cash flow will cover only half of it.

“If market growth slows even slightly, we’ll be left with excess capacity and overbuilt infrastructure, debts that become worthless, and significant losses for financial institutions,” Luria warned.

The previous bubble in the early 2000s also burst after debt accumulated to build capabilities the market wasn’t ready to use.

Giant circular deals add to the anxiety

Analysts point to circular deal structures that artificially inflate demand.

One example: a $100 billion deal between Nvidia and OpenAI, in which Nvidia funds data centers that will later be filled with Nvidia chips. Kedrosky described the logic: “I want OpenAI to buy more of my chips, so I give them the money to do it.”

CoreWeave — originally a crypto-mining platform — leases data-center capacity to OpenAI in exchange for shares, while Nvidia guarantees the purchase of any unused capacity through 2032.

Acemoglu said: “The risk is that these deals ultimately expose a fragile financial structure like a house of cards.”

Signs of fear that the bubble may burst

Some high-profile investors have already shown anxiety.

Billionaire Peter Thiel sold his entire Nvidia stake worth $100 million, while SoftBank exited a roughly $6 billion position.

Skeptics are increasingly focused on Michael Burry — famous for predicting the 2008 crash — who recently bet against Nvidia and criticized “accounting tricks” and circular financing.

Burry wrote on X: “Real demand is laughably small… almost every customer is funded by the vendors.”

He added: “OpenAI is the lynchpin here… can anyone name its auditor?”

Even top executives acknowledge the hype

OpenAI CEO Sam Altman said last August: “Are we in a phase of investor overexuberance? In my view, yes. Is AI the most important thing happening in a long time? Also yes.”

Google CEO Sundar Pichai told the BBC that “there are elements of irrationality” in today’s AI markets, adding that any bubble burst would hit everyone: “No company will be immune — including us.”

U.S. stocks climbed on Monday, supported by a strong rebound in the technology sector, particularly AI-linked names, alongside rising expectations for a Federal Reserve rate cut at next month’s meeting.

Fed Governor Christopher Waller said he favors a rate cut in December, though he noted that the January decision may be more challenging due to the backlog of delayed economic data.

His remarks followed comments from New York Fed President John Williams on Friday, who signaled that the central bank may have additional room to ease policy.

Williams said that monetary policy “remains moderately restrictive,” though less so than before the Fed’s recent actions, adding that he still sees scope for “another adjustment in the near term” to bring rates closer to neutral and keep the Fed balanced between its dual mandates.

According to CME FedWatch, markets now assign a 79% probability to a 25-basis-point rate cut in December, up sharply from around 42% a week earlier.

In equities, the Dow Jones Industrial Average rose 0.6% (285 points) to 46,530 as of 16:15 GMT.

The S&P 500 gained 1.4% (93 points) to 6,695, while the Nasdaq Composite jumped 2.4% (527 points) to 22,801.