SoftBank Group shares surged more than 5% in Tokyo trading on Friday, leading a broader rally in Japanese technology stocks as investors grew more confident that the Federal Reserve will hold off on further rate hikes. The Nikkei 225 climbed 1.8% to 69,523.56, buoyed by a softer-than-expected US producer price report that trimmed the probability of a September Fed rate increase to roughly 35%.
For SoftBank, whose valuation is increasingly tied to AI-related assets such as chip designer Arm and OpenAI, easier US rate expectations provide a supportive backdrop. Lower rates tend to boost the present value of high-growth technology companies, which now account for a larger share of SoftBank's portfolio under CEO Masayoshi Son's AI-focused strategy.
The company's net asset value (NAV) has swung dramatically with tech sentiment. It jumped from about ¥40 trillion at the end of March to ¥72.3 trillion by the end of June, helped by gains in Arm and Intel. However, the July market correction slashed NAV back to roughly ¥58.3 trillion by August 5, underscoring how quickly paper wealth can evaporate when technology valuations turn.
While softer US rate expectations are a tailwind, investors are increasingly focused on the Bank of Japan's next move. The BOJ raised its policy rate to 1% in June, and market pricing now suggests a 76% probability of another hike in September, up sharply from 24% on July 30, according to Tokyo Tanshi. Former Japanese currency diplomat Mitsuhiro Furusawa told Reuters that most market participants now expect the BOJ to act next month.
Analysts at Citi have adopted a hawkish stance, telling the Financial Times that "more hawkish action than previously is now clearly required" and forecasting the policy rate to reach 2% by the end of 2027. Goldman Sachs has also noted that risks are skewed toward an earlier rate increase.
The potential for BOJ tightening introduces a significant currency risk for SoftBank. Higher Japanese rates could strengthen the yen by narrowing the yield gap with the US, which would reduce the yen-translated value of SoftBank's dollar-denominated overseas assets. A stronger yen would also remove part of the currency tailwind that boosted SoftBank during the yen's prolonged decline.
Deutsche Bank analyst Peter Milliken has previously warned about this vulnerability. In June, he downgraded SoftBank to Hold, saying investors were "vulnerable to a reversal" in either elevated technology prices or the weak yen after the stock's massive run.
Despite these risks, SoftBank retains powerful growth drivers. Arm remains central to the AI chip ecosystem, OpenAI represents one of Son's largest bets, and the group is committing billions more to data centers and AI infrastructure. These exposures make the stock unusually sensitive to both technology valuations and foreign exchange movements.
A rapidly rising yen could also trigger broader market volatility by encouraging investors to unwind yen-funded carry trades, where cheap Japanese borrowing finances investments in higher-return assets abroad. However, a single BOJ hike may not derail SoftBank's AI rally entirely. Its overseas holdings could appreciate enough to offset currency pressure, and a gradual yen recovery would be less disruptive than a sudden surge.
For context, other AI-driven names have also seen sharp moves recently. SanDisk's AI-driven growth targets lifted its shares 15%, while Foxconn's AI server demand boosted its quarterly profit by 35%. Meanwhile, Japan's wholesale inflation remains elevated, adding to the case for BOJ tightening.
This article is for informational purposes only and does not constitute financial advice.
