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Hedge Japan fund or unhedged?

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Question asked 12/09/2026

Hedge Japan fund or unhedged?

I'm seeking your insights on the implications for the Japanese stock market on Scott Bessant's US support for the Japanese bond market. I've read a lot about how his fairly brazen efforts to lower the high US bond yields can be described as "bringing a knife to a gun fight" but what has changed is that an unhedged Japan fund (IJP - up 13.3% so far this FY) has significantly underperformed a hedged fund (HJPN - up 0.3%) reflecting the changed currency rates. Normally these two funds are a close match or HJPN performs much better, as in 2025 (up 25.6% vs 11.1%) or FY 2025/26 (up 58.7% vs 19.3%. Based on Trump's entrenched war against Iran and US's ever enlarging deficit it seems that IJP will continue to grow. But I'm very good at getting these things wrong!

Answer

Hi Bill,

We agree with your conclusion that the unhedged version will outperform from here but for slightly different reasons both coming to the same conclusion that the US$ will weaken against the Yen. However, we believe this is a relatively new phenomenon with HJPN having outperformed IJP in FY26.

Moving forward into FY27 the Yen is well supported on a several fronts:

The Bank of Japan (BOJ) is firmly in tightening mode driven by domestic inflation and wage dynamics, and a stronger yen is a consequence of this path.
Scott Bessent is attempting to rein in long term bond yields, and we can see him succeeding to a degree if/when the US-Iran conflict improves.
Japan and the US have already conducted joint FX intervention – buying the Yen.
Hedge funds are currently positioned for USD/JPY to fall below 150 by year-end, with some options targeting as low as 140.

While we are not FX traders at MM, we do have are bullish bias towards the Yen suggesting the IJP will outperform into 2027.

chart

iShares MSCI Japan ETF (IJP) vs. BetaShares Japan ETF FX Hedged (HJPN)

LAST UPDATED 11/09/2026 11:45

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