Silver Rises Over 120% YTD 
Financial markets are facing a potentially dangerous convergence of economic factors that could trigger a significant downturn, according to Dhaval Joshi, chief strategist at BCA Research.
The S&P 500 has already lost its yearly gains amid growing concerns about tech valuations, economic uncertainty from job cuts, and Trump’s tariff rhetoric. Behind these immediate concerns lurks a more structural threat stemming from divergent inflation profiles between nations. The U.S. and U.K. are experiencing what Joshi terms “mini-stagflation” – slowing economic growth combined with persistently high inflation expectations due to collective memory of past inflation shocks. Meanwhile, the EU and Japan maintain more disinflationary mindsets.
This divergence is forcing different central bank responses, with the Bank of Japan uniquely positioned in a tightening cycle. As the BOJ moves to normalize rates from near-zero to a neutral 1-2.5%, it potentially undermines a significant carry trade where investors borrowed cheaply in yen to fund purchases of high-flying AI stocks. Joshi provides compelling evidence of this relationship through an inverse correlation between Microsoft’s valuation and Japanese 10-year real bond yields since early 2023. This “reflexive” relationship requires both stable low yields on yen funding and stable high returns on AI stocks – conditions that are now changing as Japan normalizes monetary policy while the Fed remains on hold due to stagflationary concerns.
