Goldman Sachs strategists have warned that Japan’s equity market is more crowded than it was before the violent summer 2024 selloff, leaving heavily owned themes — particularly AI-linked exporters, banks and cyclical industrial stocks — exposed to a rapid deleveraging event if global growth expectations deteriorate.
The warning carries implications beyond Tokyo. A disorderly unwind in one of the world’s most heavily positioned equity markets could raise demand for cash across multi-asset portfolios, a process that has previously added pressure to liquid cryptocurrency markets. Digital assets trade continuously, including through periods when traditional equity and funding markets are closed, making them a readily tradable source of liquidity for funds facing losses elsewhere.
Goldman’s analysis does not argue that a yen rally is the most immediate danger this time. Instead, it places the larger tail risks around a shock to expectations for global AI spending or a geopolitical event that weakens the market narrative of U.S.-led growth. Those events could hit many of the same Japanese shares that have powered the market’s advance, forcing funds to cut positions that have become increasingly concentrated.
Japan’s 2024 selloff showed how quickly positioning can unravel
The firm pointed to the July-August 2024 episode, when the TOPIX fell 24% from a record high after USD/JPY moved from 162 to 143 in less than a month. The selloff followed an unexpected Bank of Japan interest-rate increase and a weaker-than-expected U.S. employment report.
Goldman said the pace of the yen’s appreciation, rather than its absolute exchange rate, was central to the market disruption. A sudden currency move activated stop-loss levels and forced portfolio liquidations, turning a decline in exporter stocks into a broader equity rout.
The first phase ran from July 11 through the end of that month. Softer U.S. consumer-price data and Japanese authorities’ yen-support operations weighed on exporter-linked stocks, while the TOPIX bank index remained comparatively resilient. Banks rose 5% on July 31, the day the Bank of Japan announced its rate increase.
Selling accelerated between July 31 and Aug. 5 after the central bank adopted a more hawkish tone than markets had expected and U.S. payroll data released on Aug. 2 weakened sharply. Goldman said Japanese bank stocks dropped 27% from their post-rate-hike high through Aug. 5, hurting portfolios positioned for gains in exporters and financials while betting against domestic defensive shares.
The sequence exposed the mechanics of a crowded-market reversal. Goldman described stop-loss triggers leading to forced sales, followed by reductions from long-only managers. Risk-parity funds and commodity trading advisers, which often adjust exposure when market momentum changes, added to the selling as volatility rose.
TOPIX then rebounded 23% from its Aug. 5 low through Sept. 3, a recovery Goldman viewed as consistent with a liquidity-driven unwind rather than a lasting reassessment of Japanese companies’ fundamentals.
The yen backdrop has changed, but equity crowding has intensified
Goldman’s foreign-exchange team expects USD/JPY to reach 162 in three months, 163 in six months and 165 in 12 months, lifting its previous forecasts of 160, 158 and 155. The firm cited U.S. interest rates likely remaining higher for longer, Japan’s fiscal position and a gradual, well-signaled Bank of Japan tightening path.
Japan’s 10-year government bond yield has approached 3%, reviving discussion about whether domestic pension funds could repatriate overseas assets. Goldman’s view is that such flows would likely develop gradually rather than create the abrupt yen move seen in 2024.
The Commodity Futures Trading Commission’s positioning data show non-commercial traders holding a net short yen position near the level recorded in July 2024, according to Goldman. Yet the firm said markets now more fully price the case for yen weakness, while one-month USD/JPY implied volatility remains relatively low.
That combination reduces the likelihood of an identical currency-driven shock, but it does little to ease the equity-positioning problem. Goldman estimated that foreign buyers had accumulated roughly ¥14.8 trillion of Japanese equities since April 2025’s “Liberation Day,” with foreign net positions more than 20% above their level before the 2024 selloff.
Retail margin-buying balances were 35% above July 2024 levels and near a five-year high, Goldman said. Its prime-services data also placed hedge funds’ total Japan allocation at the 99th percentile and net Japan allocation at the 98th percentile of the past five years, measured as shares of global portfolios.
AI and cyclicals sit at the center of the crowded trade
Japan’s gains have not been evenly spread across the market. Goldman said TOPIX and the Nikkei 225 were up 37% and 53%, respectively, from July 11, 2024, but many TOPIX constituents remained below their 200-day moving averages.
Banks, steelmakers, nonferrous-metal producers, electronics companies, precision-instrument makers and AI-linked exporters led the advance. The Nikkei-to-TOPIX ratio reached 18 times in June, while the median valuation of AI-related TOPIX shares was close to twice the valuation of non-AI stocks, according to Goldman.
That concentration creates a more direct vulnerability to a reassessment of AI demand. If corporate spending projections, semiconductor demand or global growth estimates weaken, funds holding overlapping AI and cyclical positions could be pushed to reduce risk simultaneously.
Cryptocurrency markets would not necessarily move in lockstep with Japanese equities. Their response would depend on whether any selloff remained local or developed into a wider funding and risk-aversion event. Yet the 24-hour structure of digital-asset markets can make them vulnerable when leveraged traders and multi-asset funds seek immediate liquidity during periods of stress.
The practical risk is less a predictable yen-driven repeat of August 2024 than a fast cross-market move in which crowded equity positions, leverage and thin weekend liquidity reinforce one another. Goldman’s warning places Japanese stocks among the markets where a reversal could begin, while the concentration in AI-linked trades gives any disappointment in that theme the potential to travel well beyond Tokyo.
Concerned about Japan’s crowded AI trades? Deepen your macro view with Toobit’s academy piece Japan’s pivot reshapes December outlook.
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