Must-know: Why is it important to hedge your Japanese position?



We are presently overweight Japanese equities, as their valuations are attractive relative to U.S. stocks. If you’re looking for exposure to Japan, there are several ways to get it:

Currency hedged. Currency Hedged ETFs provide exposure to Japanese stocks while seeking to minimize exposure to the yen. Because a weaker yen can take away from performance – and Russ K expects that the yen will remain weak – many investors have turned to currency hedged ETFs to get exposure to Japan. For more on the importance of currency hedging, read this Blog post on the topic. Related iShares ETF: iShares Currency Hedged MSCI Japan ETF  (HEWJ).

Market RealistThe yen has depreciated against the U.S. dollar by 35.9% over the last two years. This means that if a U.S. (SPY)(IVV) citizen had invested in the Japanese stock market (EWJ)(DXJ) two years ago, they would have lost 35.9% of their money today just due to depreciation.

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Japan is export-oriented, which means that its stock return inversely relates to the yen. This relation partially hedges its foreign exchange loss. But, to fully hedge the currency component, there are some hedged ETF options, such as the iShares Currency Hedged MSCI Japan ETF (HEWJ). This ETF would prevent eroding market gains due to currency depreciation.


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