I think yen should be about as rare as they are now. Yes, sashes will have a clear edge. So what? Since they are focused on possession, the fact that one of their sources of power comes from an item seems just appropriate. If you think they become too powerful, nerf their other powers, but remember that those 15-25+ yen it takes for the second, third and more powers are a helluvalot even for a sash; not everyone is like GD. And if they spend those yen in an item - they can't spend them in a fight to purchase powers.
My suggestion: trash the part about the item losing a power when you drop a tier. It is already bad enough to drop a tier, without having to lose the 35 yen you spent for your item's last power as well. Yes, you would end up being a little more powerful than another fighter of the same tier, but that would only become an issue if you dropped several tiers, which is very, very, very unlikely. At least, you could make it so that the lost power returns when you go up a tier again. In that case, however, you should force the player to choose one of the 'strongest' powers - ie, one of the 'at-will' ones.
Also, I would consider the possibility of letting a given item retain its powers - however, in any one fight, a fighter with more than one item should declare at the beginning which one he is going to use. It seems difficult that a fighter gives away his item, and it seems even more difficult for a high-ranking fighter to give away his very powerful item. And the possibility to actually exchange and give items makes for very good plots, or at least very good money.
The only bad scenario I can foresee is the high-ranker who retires and presents his yellow belt protegee with a katana of fist of fury with three signature styles and poison blade - that would suck. But since the low-tier rule above kicks in, all but the two least powers would be negated until the fighter climbs some more ranks. The yellow would have two extra sig styles, big deal - he could have them anyway if the high-ranker just gave him some yen to make his own item.