This article explains how to construct an investment portfolio for an era of yen depreciation and inflation, using examples combining yen- and dollar-denominated assets and specific asset allocations. It focuses on the use of dollar-denominated assets and risk-hedging considerations.
This article organises the views of a regional financial planner on developments surrounding the Bank of Japan's monetary policy meeting and portfolio management in an era of yen depreciation and inflation. Following the previous discussion of interest-rate trends, it introduces the current situation of ongoing rate increases and the background to opposing views.
At the Bank of Japan's monetary policy meeting, the policy rate was raised to 1.25%, while attention focused on the relationship between the current administration's intentions and the market reaction. The reasons given for opposition by 2 committee members included support for a policy aimed at lifting share prices against the backdrop of economic weakness. The article also touches on the possibility of foreign-exchange intervention as the yen weakens.
Regarding exchange-rate movements, the article presents the view that the yen will continue to weaken as the effects of the Japan-US interest-rate differential and inflation are expected to persist. It contrasts high US mortgage rates with Japan's fixed-rate mortgage rate, which remains low at 3.460%.
Diversification including dollar-denominated assets is proposed, with a specific plan for adding such assets to a portfolio as a measure against yen depreciation and inflation. One example assumes a 60% yen-denominated and 40% dollar-denominated allocation, combining dollar money market funds, dollar deposits and US equities.