On 30 January 2026, President Trump nominated Kevin Warsh to succeed Jerome Powell as chairman of the Federal Reserve. The Senate confirmation process is underway, and Warsh is expected to take the chair when Powell’s term expires in May.

Most Western coverage has focused on what this means for US rates and the dollar. Less discussed is what it might mean for Japanese equities, and why investors looking to diversify beyond an increasingly concentrated US market should be paying attention.

Who is Kevin Warsh

Warsh served as a Federal Reserve Governor from 2006 to 2011, the youngest Board member in the Fed’s history at the time. Before the Fed, he worked in mergers and acquisitions at Morgan Stanley and served as a special assistant for economic policy in the George W. Bush White House.

His family connections are relevant. Warsh’s father-in-law is Ronald Lauder, an heir to the Estee Lauder fortune, a major Republican donor, and a close friend of Donald Trump from their Wharton School days. This relationship has led market participants to expect that Warsh will maintain a cooperative rather than adversarial stance toward the administration.

During his time at the Fed, Warsh was considered a hawk, dissenting from certain post-2008 easing measures. His public position has since evolved. In a Wall Street Journal op-ed, he argued for a more pragmatic approach focused on restoring Fed credibility, suggesting a willingness to ease when conditions warrant.

Why this matters if you are looking at Japan

The connection between a new Fed chair and Japanese equities may not be immediately obvious. But it runs through the currency market, and for US and European investors, the currency component of a Japanese equity investment can be as significant as the equity return itself.

When the Fed cuts rates, US Treasury yields fall, and the interest rate differential between the United States and Japan narrows. This tends to strengthen the yen against the dollar and the euro, because the carry trade that borrows in yen to invest in higher-yielding Western assets becomes less profitable.

For a dollar-based or euro-based investor holding Japanese stocks, yen appreciation is a direct tailwind. A Japanese stock that returns zero in yen terms but benefits from a 10% yen appreciation delivers a 10% return in your home currency. This currency tailwind is something that investors in US domestic equities simply do not get.

The market consensus as of early 2026 is that the Fed will cut at least twice this year. Some expect more aggressive easing under Warsh, given the administration’s preference for lower rates and a weaker dollar. If that plays out, investors with Japanese equity exposure would benefit from both the equity story and the currency shift.

Bessent’s framework and the dollar

Treasury Secretary Scott Bessent has been open about wanting to bring down the 10-year Treasury yield, which directly affects US mortgage rates. His framework targets 3% GDP growth, a 3% budget deficit, and 3 million additional barrels of oil production per day. The implicit fourth target, less discussed but arguably the most important, is a 10-year yield low enough to make homeownership affordable again.

Warsh’s appointment complements this. A Fed chair willing to ease, combined with a Treasury Secretary focused on lower long-term yields, points toward a weaker dollar environment. And a weaker dollar means a stronger yen.

Meanwhile, the Bank of Japan is moving in the opposite direction, gradually raising rates from 0.5% toward what the market expects will be 1.0% or higher. US rates going down while Japanese rates go up is a straightforward recipe for yen appreciation.

The diversification case

For investors whose portfolios are heavily weighted toward US equities, particularly through index funds where the S&P 500 accounts for roughly 65% of global market capitalisation, the concentration risk is real. A handful of US technology companies drive the majority of index returns. A new Fed chair who brings rates down may support those valuations in the short term, but it simultaneously strengthens the case for geographic diversification.

Japanese equities offer exposure to a different set of drivers: industrial competitiveness, governance reform, domestic demand recovery, and a monetary policy cycle that is early rather than late. Adding yen-denominated assets to a dollar-heavy portfolio also provides a natural currency hedge against dollar weakness.

What to consider

None of this is a prediction. Currency markets are volatile, political dynamics in Washington shift quickly, and the BOJ could surprise in either direction. But the structural setup, with US rates likely declining, Japanese rates rising, and the new Fed leadership signalling a preference for easier money, creates conditions that appear to favour yen strength over a multi-year period.

For US and European investors who have been watching Japanese equities from a distance, the appointment of Kevin Warsh may be one more reason to take a closer look. The currency tailwind alone could make the difference between a modest return and a compelling one.

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