Japan FX: Historical highs for Japanese equities and ongoing JPY weakness

Research evidence excerpt

Japan FX: Historical highs for Japanese equities and ongoing JPY weakness

Japan FX

07 July 2026 Citi Research

Figure 3. USD/JPY, Nikkei 225 Figure 4. Financial environment surrounding USD/JPY

225 75,000

(USD/JPY) Monetary Higher Upward

215 70,000 Higher

easing by → US stocks → Japanese → pressure on

205 65,000 the Fed stocks USD/JPY

195 60,000 ↓

185 55,000 ↓

175 Higher USD/JPY ⇔ Higher stocks 50,000 Monetary policy (Balanced

(BoJ was easing monetary policy） ↓ normalization ⇔ USD/JPY)

165 45,000 by the BoJ

155 40,000 ↓

↓

145 35,000

(Nikkei: JPY)

135 30,000 Narrower Downward Higher stocks ⇔ USD/JPY sideway Lower US

→ → → interest rate → pressure on 125 (BoJ is normalizing monetary poliy) 25,000 interest rate

Oct-22 Apr-23 Oct-23 Apr-24 Oct-24 Apr-25 Oct-25 Apr-26 differential USD/JPY

USD/JPY Nikkei 225 [Rhs]

© 2026 Citigroup Inc. No redistribution without Citigroup’s written permission. © 2026 Citigroup Inc. No redistribution without Citigroup’s written permission.

Source: Bloomberg, Citi Research Source: Citi Research

Investment in Japanese equities by foreign investors and

buying of JPY

Along with the contraction in the interest rate spread, we think investment in

Japanese equities by foreign investors is also supporting the JPY in terms of

supply/demand. Inbound foreign portfolio investment (FPI) in Japanese equities

grew rapidly in the first half of the 2010s, in the early stages of Abenomics, and

then there was a net decline in the second half of the 2010s (Figure 5). We suspect

the selling of the JPY that resulted was, after a time lag, one cause of the JPY

depreciation of the first half of the 2020s.

On the other hand, there has been a clear recovery in investment in Japanese

equities by foreign investors since 2025, with net growth exceeding ¥20trn. If 80%