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Following the major announcement by the Japanese government on 10 July, we review the recent arguments about structural weakness of the yen and consider whether this could be about to change.
To hedge or not to hedge? Is that still the question?
Global investors allocating to Japan have always faced an FX issue that other developed markets have not presented. The yen’s persistent if fluctuating tendency to weaken versus the dollar has meant whatever level of investment returns are achieved on a local currency basis, the risk was always present that these would be eaten away by currency depreciation.
This looked like it might be starting to change, however, with the election of Sanae Takaichi last year. Her pro-investment fiscal stimulus approach was heralded as adding more fuel to the fire that was propelling the Japanese market to new heights, and the expectations that the strong rally of recent years could continue were high.
However, the mixed fortunes of the Japanese market and currency since the outbreak of war in the Middle East have cast doubt on this rosy picture into doubt. As the chart below shows, when viewing in historical context the downward glide path of the yen has been as yet relatively unaffected by Takaichi’s reforms.
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Richard HAXE
Managing Director, Head of Business Development
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Executive Director, Head of Distribution - UK and Ireland
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Director, Business Development & Client Relations
Thomas CARTWRIGHT
Director, Business Development & Client Relations
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