Record highs in Japanese stocks have encouraged portfolio rebalancing and currency-hedging transactions among domestic and overseas investors. The relationship between Japanese stocks and USD/JPY is complex and works in both directions. Still, USD/JPY's sensitivity to Japanese stocks has declined since 2025, partly as the monetary-policy gap between the U.S. and Japan narrowed. A steep TOPIX correction is not the base case, as the Japanese equity strategy outlook remains bullish. Related articlesHow will adjustment in Japanese stocks impact the USD/JPY?