● Yen Carry Meltdown, AI Capex Arms Race
Japanese First Female Prime Minister ‘Imminent Scenario’, Encarry Trade Liquidation, and the AI KEPX War Accelerating with Sora 2: The 2025 Q4 Macro/AI Roadmap at a Glance
This article covers key catalysts that could shake the short-term market, power and financial infrastructure bottlenecks overlooked by most news outlets, the structural demand in semiconductors and data centers triggered by Sora 2, and the chain reaction effects of Japanese political events on exchange rates and risk assets.
In particular, it outlines the practical path of Encarry trade liquidation, the secondary shock inflation might suffer from the power grid and HBM supply, and how the KEPX war is reshaping the macroeconomy, all summarized with ‘numbers and timelines’.
2025.10~11 Short-Term Checklist: Catalysts and Quick Glance
The pace of Sora 2 commercialization is confirmed by top rankings in the App Store, indicating that the phase where video-generating AI requires at least an order of magnitude more computing power compared to text has begun.
This simultaneously stimulates demand for semiconductors and data center power, creating a typical scenario where CAPEX execution elevates stock prices ahead of quarterly earnings.
OpenAI’s engagement with funding channels in the Middle East and Asia signals long-term power and asset package deals with sovereign funds, intensifying the trend for KEPX financing to bundle ‘chip + power + land’.
In Japan, internal shifts within the Liberal Democratic Party have made the ‘first female prime minister’ scenario highly discussed, and a policy stance favoring concurrent fiscal and financial easing is altering exchange rate and interest rate expectations.
Even though the Fed faces a subdued core effect due to energy factors, the stubborn core PCE suggests that the path to rate cuts will be gradual, and the easing of the dollar’s strength will remain dependent on the ‘Japan variable’.
Encarry Trade Liquidation: Why, When, and How It Bursts
We start by outlining the mechanism.
Positions that borrow at low-interest-rate yen to invest in high-yield assets are unwound in one move under the combination of ‘rising Japanese interest rate expectations + rapid yen appreciation’, resulting in a contraction in overall leverage in risk assets.
The liquidation signal appears in three stages.
1) A sharp drop in USD/JPY (strong yen) accompanied by a surge in rollover costs for Japanese institutional currency hedges, 2) a rapid normalization or a jump above zero in the cross-currency basis (JPY leg), 3) expectations of narrowing US-Japan interest rate differentials spreading into US treasuries long and quality preferences, triggering a spike in Nasdaq volatility.
The market impact unfolds as follows.
- Exchange Rate: A short-term movement of 5-10 yen in the exchange rate will synchronize the movements of the dollar index (DXY) and emerging market exchange rate volatility.
- Bonds: The 10-year US Treasury may initially strengthen due to ‘hedge demand’, but it will later adjust due to supply factors and re-ignition of inflation variables.
- Stocks & Crypto: High-beta growth stocks and leverage-friendly assets like BTC and ETH will be affected first.
There are two points ‘rarely mentioned elsewhere’.
First, the primary margin call for carry trade liquidation is observed not only in FX but also first in crypto peer-to-peer positions and unhedged US growth stock positions.
Second, because Japanese life insurance companies and pension funds hold a high proportion of FX-hedged US treasuries, a surge in hedge costs reduces the supply elasticity of US treasuries, and if the JGB repo specialty spikes, volatility in the global repo market as collateral could widen abnormally.
The weighted probabilities according to scenarios are as follows. - Doveish Japan (Continued easing and gradual steps): A moderate contraction in carry positions, an increase in volatility for risk assets but with limited trend collapse.
- Hawkish shift (A sudden policy turn and raised guidance): A marked increase in short-term ‘risk-off’ sentiment, a potential 5-8% adjustment in USD/JPY, and an expanded adjustment range for growth stocks and crypto.
Key indicators include daily USD/JPY volatility, JPY 3M basis, TONA-OIS spread, simultaneous declines in the Nikkei and Nasdaq, and BTC/JPY price.
Economics Transformed by Sora 2: Triple Demand in Computing, Power, and Semiconductors
For text-based LLMs, token costs and inference length are key, but video generation scales FLOPs exponentially with frame rate, resolution, and length.
For a one-minute 1080p video, the inference requires roughly an order of magnitude more computation than a text response; and when simultaneous connections are added, HBM and networking become the bottlenecks.
HBM supply will remain tight in 2025.
SK hynix’s expansion of HBM3E and next-generation HBM4, Samsung Electronics’ capabilities in TSV and advanced packaging (complementing/replacing ACube/COWoS), and Micron’s production ramp-up timing will determine pricing.
The bottleneck lies not in the chip itself, but in packaging, CoWoS capacity, and the substrate (ABF).
The main constraint for data centers is power.
Lead times for substations in major US and Asian hubs have increased to 24-36 months, and large cloud and AI companies are pre-contracting packages of renewable energy plus backup gas through PPAs.
This power bottleneck becomes a new channel for inflation in the macroeconomy.
If power rates, network equipment, and cable prices pass through to service prices, core inflation may decline more slowly than anticipated.
The accounting aspects of the KEPX war are also important.
Depreciation of AI accelerators, servers, and power equipment is concentrated over 3-5 years, meaning that EPS improvements from efficiency gains will show in 2026-2027, while 2025 remains an ‘excess phase of cash outflow > earnings contribution’.
Remember these three points that ‘others rarely notice’.
1) Investment in the power grid determines the realizable demand for semiconductors.
2) Rising data center infrastructure prices push regional inflation and rents upward.
3) Video AI simultaneously boosts demand for the networking stack (InfiniBand/Ethernet) and optical modules, structurally raising the BOM per server.
South Korea Perspective: Beneficiaries, Risks, and Positioning Hints
In semiconductors, HBM, HBM packaging, and advanced substrates gather alpha, while general DDR might face delayed cyclical recovery.
In domestic data center investments, securing a power connection is key, and companies dealing with transformers, switchgear, and high-voltage cables could see significant benefits.
If exchange rates move quickly, fluctuations in foreign investor flows in the KOSPI will increase, and dividend stocks with solid cash flows will stand out for their defensive strength compared to growth stocks.
When Encarry liquidation risks escalate, the synchronization of KRW/JPY and KRW/USD becomes pronounced, making it useful to pre-check FX hedge ETFs or alternatives for dollar deposits.
Timeline Roadmap: 0~18 Months
0~3 Months: Japanese political events and Bank of Japan communications set the direction for USD/JPY, and Sora 2 traffic further extends GPU lead times.
HBM price renegotiation issues could surface by the end of the quarter.
3~9 Months: M&A activity in power connection, land, and data center LEGO blocks increases, and KEPX financing diversifies into corporate bonds and ABS.
Rising capacity utilization in the US and Korea may stimulate producer prices (PPI).
9~18 Months: The tangible transmission of AI productivity improves the software revenue mix, normalizes depreciation burdens, and EPS gets on track.
Conversely, if power grid expansion is delayed, a stagflation risk of ‘price inflation + growth slowdown’ could reemerge due to demand outstripping supply.
Risk & Contradiction Points
If Japan maintains fiscal expansion while the BoJ quietly reduces its bond purchases in a ‘stealth tightening’ manner, Encarry liquidation could be delayed, prolonging the risk asset rally.
If Sora 2 traffic dims after an initial spark, GPU orders might be adjusted in subsequent quarters.
If power grid regulations are not relaxed, supply chains could be blocked not by chips but by power, sharply reducing CAPEX efficiency.
Practical Checklist (Focusing on Macro, Interest Rates, Exchange Rates, Inflation, and Semiconductors)
- Constantly monitor USD/JPY and JPY 3M basis, FRA-OIS, and TONA-OIS for stress in the funds market.
- Track HBM lead times, packaging (CoWoS and similar processes) capacity, and announcements about ABF substrate expansion.
- Watch for news on data center power connection rights, substation orders, and high-voltage cable contracts.
- Check the speed at which power, rent, and cloud prices are reflected in service items within PCE and CPI.
- Mark the schedules for Japanese Prime Minister and LDP leadership races, as well as BoJ meeting guidance, on your calendar.
Summary Investment Memo (For Reference)
The Encarry trade liquidation variable manifests as a three-part set: ‘Japanese politics + BoJ tone + abrupt USD/JPY movement’.
Sora 2 accelerates the demand pivot from text to video, making HBM, packaging, power, and networking key bottlenecks.
The KEPX war creates an asymmetry with short-term cash flow burdens and mid-term EPS leverage.
The power grid ultimately acts as the supply constraint, and through regional inflation, it could alter the interest rate trajectory.
For South Korea, the key is in benefiting from the HBM value chain, power infrastructure, cables, and data center REITs, while managing exchange rate volatility is essential.
< Summary >
Japanese policy shifts could trigger Encarry trade liquidation, which in turn would ripple through exchange rates, bonds, growth stocks, and crypto.
Sora 2 pivots demand toward video AI, simultaneously stimulating demand for computing, power, and semiconductors, with HBM, packaging, and power grids as the key bottlenecks.
The KEPX war creates a scenario of short-term cash flow pressure and mid-term EPS leverage.
Power infrastructure and data center supply can serve as new conduits for inflation, potentially altering the interest rate path.
For South Korea, the core lies in benefiting from semiconductors, power infrastructure, and managing exchange rate risks.
[Related Articles…]
Encarry Trade: The True Catalyst of Exchange Rate Shock
Sora 2: The Economics of Data Centers Driven by Generative Video Models
*Source: [ Maeil Business Newspaper ]
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