The move toward yen appreciation accelerated rapidly in September. Exchange-rate movements affect returns on overseas equity investments, creating a difference between the yen-denominated and U.S. dollar-denominated All Country indexes.
The move toward yen appreciation accelerated rapidly in September. The stronger yen is attributed to expectations of an additional Bank of Japan rate hike and the unwinding of yen-selling positions, raising concerns about the impact on overseas equity investment trusts.
Investment trusts that invest in foreign-currency-denominated assets are also affected by exchange-rate movements. Without currency hedging, yen appreciation weighs on returns. Against this backdrop, attention is focused on the All Country fund, a long-standing staple of diversified investing.
Since 2021, when the yen began to weaken, yen-denominated index funds have often outperformed the underlying index in U.S. dollar terms, supported by exchange-rate movements. In 2022 in particular, the decline in yen-denominated funds was kept relatively small even as global equities fell.
As a result, the yen’s weakness in recent years has tended to amplify returns when share prices rise and cushion losses when they fall, working in a favorable direction for yen-denominated investment trusts.