The biggest risk for American tech stocks is: Japanese government bonds

Against the backdrop of soaring valuations of U.S. tech stocks, an underestimated risk is quietly emerging—the potential normalization of Japan's government bond real yields.

BCA Research's latest report warns that as a significant source of global liquidity, changes in Japan's bond yields could pose a substantial threat to U.S. tech stocks; if Japan's real yields experience a substantial rebound in 2025, it may trigger downward pressure on tech stock valuations.

Recently, Japan's 30-year government bond yield reached a multi-year high, but the real long-term bond yield only rose slightly by 30 basis points, remaining in negative territory.

BCA Research emphasizes that only when Japan's real bond yields rise significantly will its assumptions about valuation vulnerability be fully validated.

Japanese Liquidity: The Invisible Pillar of Tech Stock Valuations

BCA Research's analysis shows that from 2019 to 2022, U.S. tech stock valuations were perfectly synchronized with U.S. real bond yields.

However, at the end of 2022, tech stock valuations diverged from U.S. real yields and instead became linked to Japanese government bonds (the last globally with negative real yields).

This indicates that the high valuations of U.S. tech stocks are not solely based on domestic liquidity but also rely on the low-cost funding environment provided by Japan.

However, the current domestic economy in Japan is undergoing changes. As long-term inflation expectations gradually approach the 2% target, the normalization pressure on the Bank of Japan's monetary policy will gradually become apparent, and the sustainability of negative real yields will face challenges.

BCA warns that if Japan's real government bond yields normalize, the global liquidity environment will tighten, directly impacting tech stocks that rely on low-cost funding. Currently, although real yields have only risen slightly, the medium-term risks cannot be ignored