• Goldman Sachs (NYSE:GS) recommends selling USD/JPY as a hedge against a potential AI-driven equity selloff, based on 20 historical episodes since 2000 where stocks and bond yields fell together.
  • The yen has historically served as a defensive currency in such 'twin drawdown' scenarios, with falling Treasury yields reducing the dollar's rate advantage and triggering carry-trade unwinds.
  • The trade is conditional, not a crash forecast, and faces counterweights from expectations of a Federal Reserve rate hike and a rising US 10-year yield.

A Conditional Hedge, Not a Prediction

Goldman Sachs has advised clients to short USD/JPY—selling the dollar and buying the yen—as a hedge against a potential AI-led stock market decline, according to a report published November 5. The recommendation is rooted in an analysis of the 20 largest episodes since 2000 in which equities and bond yields fell simultaneously. In that environment, the yen consistently stood out as a defensive currency, the bank found.

The logic is straightforward: an AI valuation shock could weaken expectations for investment, profits, and economic growth, sending equities and Treasury yields lower. Lower US yields would then reduce the dollar's interest-rate advantage over the yen, while investors unwinding yen-funded carry trades—borrowing in a low-interest-rate currency to finance higher-return investments elsewhere—may need to buy yen, reinforcing its appreciation during market stress.

But Goldman's argument is specifically about a "twin drawdown" in equities and yields. It is not a prediction that AI stocks must crash, nor proof that the yen appreciated in every historical episode. The public summary of the research does not provide a trade entry level, target, stop-loss, investment horizon, or the full historical dataset.

Market Backdrop Offers Mixed Signals

The immediate currency backdrop is supportive, though not evidence of an AI crash. The yen strengthened to approximately 157.95 per dollar, while the US 10-year Treasury yield fell to 4.847%, according to Reuters (NASDAQ:TRI). Global equities were rising after the US midterm elections, so the day's move was not the equity-selloff scenario Goldman is discussing.

Japanese monetary policy provides another source of yen support. Minutes released November 5 reinforced expectations for further Bank of Japan tightening. The BOJ's policy rate is around 1.25%, and a Reuters poll points to a possible increase to 1.5% in December.

Yet there are counterweights. Reuters reported an approximately 81% implied probability of a Federal Reserve increase of at least 25 basis points in December—a scenario that would not fit Goldman's falling-yields hedge thesis. An equity decline driven by persistent inflation and rising yields would not match the historical screen either.

A Qualification to the Headline

"Best" here means Goldman's preferred FX hedge for this specific scenario—not the best protection across all assets. The bank also noted that market pricing of the equities-down/yields-down relationship has already adjusted aggressively, strengthening its preference for expressing the hedge through foreign exchange.

Goldman's research supports a scenario-specific defensive position, not a guaranteed return or a dated crash forecast. The bank's own CEO, David Solomon, said in a November 3 Bloomberg interview that a technology "supercycle" is supporting capital-markets and financing activity—illustrating that Goldman can remain constructive on technology's long-term opportunities while recommending protection against a near-term correction.

The recommendation comes as Goldman reported strong third-quarter results, with net revenue of $18.68 billion, up 23% year over year, and diluted earnings per share of $17.01. Equities revenue surged 72% to $6.44 billion, reflecting stronger equity financing and derivatives activity.

A spokesperson for Goldman Sachs did not respond to a request for comment on the report's specific trade parameters.

Correction: November 6, 2026—An earlier version of this article incorrectly stated the US 10-year Treasury yield. It has been corrected to 4.847%.