Yen Slides to 40-Year Low, Rising FX Loss Risk for Foreign Holdings
Miles Bennett
The yen broke past 163 per dollar — its weakest since 1986 — and the gap between TOPIX's 19% gain in yen and its 14% gain in dollar terms shows that currency depreciation is now eating into foreign investors' Japan returns.
How much has the yen fallen, and what does it cost foreign investors?
The yen dropped below 163 per dollar, a level not seen since 1986.
TOPIX is up 19% this year in yen terms but only 14% in dollars. This means → roughly a quarter of foreign investors' paper gains have been erased by the currency move.
In plain terms = Japanese stocks are rising, but the yen is falling at the same time, so overseas investors get less when they convert returns back to dollars.
How is this wave of foreign ownership different?
As of March, overseas investors held 34.7% of Japanese equities — a record high, up from 30.2% five years ago.
Since PM Sanae Takaichi won the LDP leadership last October, foreign funds have net-purchased more than ¥12 trillion (≈$74 billion) in Japanese cash equities.
The key shift: Nomura cross-asset strategist Yoshitaka Suda notes that during Abenomics, foreign inflows were led by short-term traders who typically hedged their currency exposure. This time the buyers are pension funds and other long-term institutions that often leave FX risk unhedged. This means → the weaker the yen gets, the larger their real-dollar losses.
Didn't a weak yen always help Japan's stock market?
The old logic: yen depreciates → exporters earn more → share prices rise → foreign investors benefit.
The new tension: foreign ownership is at a record high and largely unhedged, so the export boost from a weak yen increasingly fails to offset investors' own currency losses.
Nomura's Suda concludes that "the positive effect of a weaker yen on Japanese equities is no longer as clear-cut as before." This reflects a structural shift in who owns Japan's market.
Are exporters still benefiting?
Bloomberg estimates that if the yen stays near current levels, Japan's major automakers will collectively gain more than ¥900 billion in additional profit.
But Daiwa Asset Management chief strategist Kazunori Tatebe warns that with the yen at historic lows, unhedged investors may sit on the sidelines and wait for the currency to stabilise before adding exposure.
In plain terms = exporters earning more is real, but if foreign investors are too worried about further depreciation to buy, the market loses its bid support.
How can we tell if foreign sentiment is actually turning?
Overseas-listed ETFs that invest in Japan on an unhedged basis have drawn cumulative net inflows of $47 billion.
Their currency-hedged counterparts have seen persistent outflows.
This means → the two product types are diverging — if unhedged ETFs also start bleeding assets, that will be the clearest signal that foreign sentiment has truly shifted. Comgest co-head Richard Kaye notes that the yen's continued slide is becoming "increasingly hard to ignore" for the large pool of unhedged holders.
Content is for reference only, not financial advice.