The AI rocketship hits market turbulence
Asia steps into Tuesday’s session with the same brittle calm you feel on a dealing floor when traders stop talking—not because they’re relaxed, but because they’re running mental stress tests no one wants to say out loud.What’s becoming obvious, even from a dimly lit Bloomberg terminal at 8:00 a.m. Bangkok time, is that the world’s most celebrated growth engine—the AI supercycle—is beginning to trade like a boomtown built on borrowed credit and evaporating patience. Investors aren’t turning bearish; they’re simply acknowledging the arithmetic. Next year’s AI capex bill has swollen to $600 billion, up from roughly $400 billion just months ago. In Asia, where regional tech and semiconductor supply chains live downstream from every hyperscaler decision, that number has genuine gravitational pull.
The once cash-flush titans of tech have morphed into inelastic issuers of debt and inelastic consumers of resources, mortgageing balance sheets to keep the AI turbines fed. They’re issuing tens of billions in paper just to maintain the pace—turning stock buyback machines into debt syndication factories. As this shift sinks in, markets are beginning to price the uncomfortable truth: the rising tide of AI is no longer lifting all boats. Some of the smaller hulls are scraping the seabed already. Asia’s equity complex, which has fed off the narrative premium, now faces more discerning money on the other side of the Pacific.
But the real tremor came not from Silicon Valley, but from the Eccles Building. The Fed’s tone hardened into a more metallic, hawkish pitch—right when markets were desperate for a soothing December cut. With inflation still a full percentage point above target, and the data blackout from the U.S. shutdown leaving policymakers effectively flying IFR without instruments, the Fed has little appetite to ease. Eight of twelve voters now lean toward a hold. And in the absence of data, the Fed’s shift is not a response to economic strength—it’s a protective crouch. That’s the wrong kind of hawkishness for risk. Asia comes in to screens that suddenly trade fewer cuts, higher real yields, and a more fragile equity risk premium.
This shift is happening in the shadow of a political cycle dominated by affordability angst. Inflation—ignored by traders for months—remains front and center for U.S. voters who have now delivered strong swings in Virginia, New Hampshire, and New York City. The White House sees those polls, and monetary policy suddenly has sharper political edges. When the electorate is laser-focused on the cost of living, no administration will be cheering for dovish impulses from the Fed. Asia, which lives downstream of U.S. liquidity and U.S. demand, cannot ignore that recalibration.
Meanwhile, inflation sits stubbornly at 2.75–3.0% across the Fed’s preferred models. That leaves precious little room for error should tariffs stick, or should the 2026 fiscal-monetary cocktail spark a wage-price echo cycle. The irony is that markets have been happy to ignore inflation, but households have not. Policymakers are starting to rediscover that gap.
The path forward is a maze, not a runway. As Asia watches the sun creep over Victoria Harbour, the two trapdoors hanging over global risk are obvious:
The delayed U.S. jobs report and NVIDIA earnings are each capable of swinging sentiment several percentage points in either direction. If both break friendly, risk will find a floor. If one misfires, equities will feel like they’re balancing on a rope bridge with fraying ropes—and Asia is the first session to price that.
Liquidity is its own headwind. The U.S. shutdown froze data, the TGA sprinted from $300 billion to $1 trillion, bills have flooded the market, and QT keeps chipping away. Private-sector reserves have taken a meaningful hit. Asia opens into a tape that feels drier than it looks. Relief is coming—bill issuance slows, the TGA runs down, QT pauses—but not before the market digests today’s discomfort.
Equities can still rally, but the glide path has narrowed. The more glaring mispricing now sits in U.S. rates, which look rich to anyone who actually believes the Fed’s refreshed inflation instinct and the cyclical backdrop. That disconnect will matter.
So Asia opens not in fear, but in recognition: the AI boom is no longer free; money is no longer easy; political tolerance for inflation is thinning; and the Fed’s reaction function has quietly changed. The boom can continue—but the runway is shorter, the margins thinner, and every misstep now echoes across time zones.
On Forex, Japan’s latest round of jawboning carries a sharper edge. Finance Minister Katayama didn’t bother hiding her discomfort, saying she is “alarmed” by the recent one-sided, rapid moves in FX and stressing the need for exchange rates to stay aligned with fundamentals. In Tokyo-speak, that’s an escalation—a step up from the usual “closely monitoring” boilerplate—but it lands to trader shrugs just as the government readies a stimulus package that has quietly grown into something sizable.
The problem, of course, is timing: intervening into a hawkish-Fed backdrop , with front-end USD yields still doing the heavy lifting, is like trying to bail out a boat while the tide is coming in. Even with equities softening, the yen is barely flickering; any MoF action now might knock USD/JPY back toward 153, only for traders to reload and squeeze it back to 160 once the dust settles. That’s the risk when intervention becomes nothing more than a better entry level for the carry crowd.
It’s worth remembering that Tokyo surprised everyone last July when it stepped in after softer US inflation—leaning against a market-driven USD/JPY selloff rather than a rally. If that playbook hasn’t changed, then Katayama’s language today is more about slowing momentum than firing a real shot. And if the MoF stays in talk-only mode, markets will almost certainly keep pressing the upper tolerance band around 156–157 in the coming weeks, testing just how “alarmed” Tokyo really is.
