Japanese equities have rallied in 2026, but currency helped determine how much of that gain dollar-based investors held onto. The MSCI Japan 100% Hedged to USD Index returned 25.8% year to date through Aug. 31, compared with 21.1% for the unhedged MSCI Japan Index — a gap of about 470 basis points. Both outpaced the MSCI ACWI Index, which returned 14.6%.

A weaker yen reduced the dollar return on unhedged Japanese equities. Hedging the currency helped investors retain more of the market’s equity gains by offsetting the yen’s decline. At least this year, the hedging decision has been an important part of the outcome for investors in Japanese equities.