Yen keeps going from strength to strength!

[ChapInTokyo]

Made me think twice about my usual liking for currency hedging my bond allocations…

Yeah, it’s not cheap to be short dollars / long yen these days. (I made some decent money being on the other side of that last year, and my 2025 plan is similar as of today)

At least for the Tsumitate part, if one is to take a long term view then I don’t think the currency fluctuations will matter much, unless there is a situation where the yen persistently strengthens month after month for years and years, over one’s investment horizon.

I've been thinking. Since it looks more likely that the JPY is more likely to weaken than strengthen against the USD if the Trump administration's policies stoke inflation rather than quell it, it would be crazy to go with my general preference for hedged rather than unhedged international bond index funds.

Would it perhaps make sense to buy unhedged now, and then re-buy them in hedged version when the Fed rates actually fall to normal levels later in the year or maybe even next year? What's the thinking on this among the gurus on this board?

I mean, just have a look at how the prices of the hedged international bond funds (Tawara No-load Developed Market Bond Fund Hedged (blue line) and the Next Funds International Bonds FTSE World Bonds Index excluding Japan ETF hedged (purple line) take a nose dive when the dollar yen exchange rate (pink line)) goes up, whereas the prices of the hedged intl bond index funds (Next Funds International Bonds FTSE World Bonds Index excluding Japan ETF unhedged (yellow line) and the eMaxis Slim Developed Market Bond Index Fund Unhedged (green line) follow the general upward direction of the pink dollar yen exchange rate line...

[sutebayashi]

if the Trump administration's policies stoke inflation rather than quell it

Taken in entirety I am thinking they will quell it, but this is just my personal guess. But we don’t even know what policies they will ultimately push through yet as they don’t have a big house majority.

Would it perhaps make sense to buy unhedged now, and then re-buy them in hedged version when the Fed rates actually fall to normal

I’d say yes to the first, and I have no view about the second at this time. I am not even sure what normal is 5% on the 10 year treasury seems normal if I forget about the abnormally low rates that prevailed after the GFC. I don’t think the FOMC members have much of a clue about it either.

[ToushiTime]

Made me think twice about my usual liking for currency hedging my bond allocations…

Would it perhaps make sense to buy unhedged now, and then re-buy them in hedged version when the Fed rates actually fall to normal levels later in the year or maybe even next year?

Foreign exchange rates are notoriously hard to predict, especially when throwing Trump and his entourage into the mix.
Too many variables. With dilemmas like this, I tend to just split the difference and buy half of both.

On the other hand, the WGBI ex-Japan funds are 50% US and 50% non-US, so you might get offsetting effects for the non-US, non-Japan portion, in which case it might be better to go unhedged and avoid the hedging costs.

https://finance.yahoo.com/video/heres-f ... 19836.html

[ChapInTokyo]

if the Trump administration's policies stoke inflation rather than quell it

Taken in entirety I am thinking they will quell it, but this is just my personal guess. But we don’t even know what policies they will ultimately push through yet as they don’t have a big house majority.

Would it perhaps make sense to buy unhedged now, and then re-buy them in hedged version when the Fed rates actually fall to normal

I’d say yes to the first, and I have no view about the second at this time. I am not even sure what normal is 5% on the 10 year treasury seems normal if I forget about the abnormally low rates that prevailed after the GFC. I don’t think the FOMC members have much of a clue about it either.

Thanks for your insights. It’s true that 5% does not seem all that high, discounting the unusually low rates following various financial and pandemic crises.

I guess the main issue for me might be that Japan has not really come out of the ultra low interest rate response to the pandemic. I guess I’ll wait to see how the market responds to the Fed and the BoJ’s decisions this Spring as more is made public about the Trump administration’s programmes.

[ChapInTokyo]

Would it perhaps make sense to buy unhedged now, and then re-buy them in hedged version when the Fed rates actually fall to normal levels later in the year or maybe even next year?

Foreign exchange rates are notoriously hard to predict, especially when throwing Trump and his entourage into the mix.
Too many variables. With dilemmas like this, I tend to just split the difference and buy half of both.

On the other hand, the WGBI ex-Japan funds are 50% US and 50% non-US, so you might get offsetting effects for the non-US, non-Japan portion, in which case it might be better to go unhedged and avoid the hedging costs.

https://finance.yahoo.com/video/heres-f ... 19836.html

Buying half of both is definitely something I am thinking about too.

The hawkish US versus dovish Rest-of-the-World balance is an interesting angle. It may be ok to go for unhedged for the next year or two and then when hedging costs become more reasonable switch to hedged.

[ChapInTokyo]

Well what does up must come down. I wouldn’t be surprised if the yen goes to 160 yen to the dollar in the next few weeks, at least until the BoJ starts increasing their rates in Feb/Mar 2025...

Well one month on, and the yen’s strengthened by almost 2% since end of last year…

What with the market prices a bit cheaper thanks to Deep Seek, and the news of the new Ali Baba AI, seems like a pretty good time to stock up on some index funds!

[sutebayashi]

Could be… I am looking for the right time to speculatively buy some dollars at the moment, but it looks to be too early.

If there is a bit more shaking out in the stock markets we could easily see 150ish in quick order.

Or worse than that too, over a longer time frame. I am saving my investing ammo for that nasty correction scenario. (Primarily I am doing tsumitate though)

[ChapInTokyo]

Could be… I am looking for the right time to speculatively buy some dollars at the moment, but it looks to be too early.

If there is a bit more shaking out in the stock markets we could easily see 150ish in quick order.

Or worse than that too, over a longer time frame. I am saving my investing ammo for that nasty correction scenario. (Primarily I am doing tsumitate though)

Could be… I am looking for the right time to speculatively buy some dollars at the moment, but it looks to be too early.

If there is a bit more shaking out in the stock markets we could easily see 150ish in quick order.

Or worse than that too, over a longer time frame. I am saving my investing ammo for that nasty correction scenario. (Primarily I am doing tsumitate though)

Yes 2025 will probably be one of those VUCA years in terms of exchange rates and stock prices so a good time to keep your eyes peeled!

As for that nasty correction scenario, I’m also keeping a good chunk of investment ammo in cash and bonds just in case…