Why the Yen’s Slide Past ¥155/$ Is a Warning for Global Portfolios

• Yen breached ¥155/$, the weakest level in over three years.
• Headline inflation fell to 1.5% – the lowest since March 2022.
• Core inflation aligned with the BOJ’s 2% target, easing rate‑hike pressure.
• Prime Minister Sanae Takaichi’s fiscal agenda could reshape Japan’s strategic investments.
• Analysts project a 1.6% weekly yen decline, erasing half of last week’s gains.

You’re about to see why the yen’s dip to ¥155 could hit your portfolio hard.

Why Japan’s Inflation Dip Gives the BOJ a Policy Breathing Room

Japan’s headline CPI slid from 2.1% in December to 1.5% in January – a 0.6‑point plunge that marks the slowest price growth since March 2022. At the same time, core CPI, which strips out volatile food and energy, landed squarely at the Bank of Japan’s 2% target. For a central bank that has been stuck in a negative‑rate limbo for eight years, these numbers are a rare invitation to pause.

When headline inflation falls below the central bank’s tolerance band, the BOJ can afford to keep its short‑term policy rate at -0.1% longer, or even consider a modest hike without shocking the economy. The key takeaway for investors is that a “no‑hike” stance typically keeps the yen under pressure because the currency loses its carry‑trade appeal.

How the Yen’s Weakening Echoes Across Global FX Markets

Currency markets are a zero‑sum game; a weaker yen means stronger competitors. The euro and the British pound have both rallied modestly against the yen in the past week, while the U.S. dollar has added roughly 0.4% to its basket of major currencies. For traders holding yen‑denominated assets, the impact is two‑fold:

• Export‑oriented equities (e.g., Toyota, Sony) gain a pricing advantage, potentially boosting earnings forecasts.
• Import‑heavy businesses (e.g., food retailers) face higher costs, squeezing margins.

Beyond Japan, the trend underscores a broader shift: emerging‑market currencies with tighter monetary policy are outperforming low‑rate havens. Investors should reassess FX‑hedged exposure, especially in multi‑asset portfolios that rely on stable yen conversions.

Strategic Investment Push from the New Government: What It Means for Sectors

Prime Minister Sanae Takaichi will open the parliamentary session promising “active but responsible” fiscal policies and a boost to strategic investments. While the specifics remain vague, the signal is clear: Japan aims to channel public funds into high‑growth sectors such as renewable energy, semiconductor manufacturing, and defense technology.

These policy hints have immediate implications:

• Renewables: Companies like Ørsted Japan and domestic solar players could see accelerated project pipelines.
• Semiconductors: The government’s push aligns with the broader “chip‑on‑Japan” narrative, benefiting firms like Renesas and Toshiba.
• Defense: Increased spending may benefit Mitsubishi Heavy Industries and other defense contractors.

For portfolio managers, the upcoming budget will be a catalyst to tilt allocations toward these “strategic” buckets, especially if the yen continues its depreciation, making overseas component costs cheaper for Japanese firms.

Historical Parallel: The 2013 Yen Surge and Its Aftermath

Investors who recall the 2013 yen rally—when the currency surged from ¥85 to ¥75 per dollar—understand the cyclical nature of currency moves. Back then, the BOJ’s aggressive easing and Abenomics stimulus drove a rapid yen appreciation, which subsequently hurt exporters and prompted a policy pivot.

Fast forward to today: the yen’s current slide mirrors the 2011‑2012 period when core inflation hovered near the BOJ’s target, and the government relied on fiscal stimulus to prop up growth. The key lesson is that a weak yen often coincides with a policy environment that favours growth‑oriented equities but penalises import‑sensitive sectors.

Technical Snapshot: Yen’s Recent Price Action

From a charting perspective, the yen broke below the 155.00 resistance level on Friday, a zone that had acted as a ceiling for the past six months. The break was accompanied by a surge in volume, indicating strong market conviction.

• Moving Average (50‑day): The yen is now trading 1.2% below its 50‑day moving average, suggesting bearish momentum.
• Relative Strength Index (RSI): At 38, the RSI signals the yen is approaching oversold territory, but a further dip could trigger a short‑term bounce.
• Fibonacci Retracement: The 61.8% retracement of the prior week’s rally sits near 154.30, a potential support if the yen tries to recover.

Technical traders should watch the 155.00 line for a decisive break; a close below could open the path toward 158.00, while a rebound above could test 152.00.

Investor Playbook: Bull vs. Bear Cases for the Yen and Japanese Markets

Bull Case (Yen Weakens Further)

• Continued BOJ dovishness keeps the currency under pressure.
• Export‑heavy equities rally, delivering double‑digit returns for sector‑focused funds.
• Strategic government spending fuels growth in renewables, semiconductors, and defense, creating tailwinds for domestic stocks.

Bear Case (Yen Rebounds)

• Unexpected inflation spikes force the BOJ to consider a rate hike.
• Stronger yen compresses export margins, hurting major manufacturers.
• Higher import costs erode consumer discretionary spending, pressuring retail indices.

Given the current data, the odds tilt toward the bull scenario, but investors should retain a hedge—either via currency forwards or by diversifying into yen‑neutral assets—to guard against a surprise policy shift.