- Value funds fared badly during the sell-off
- Funds heavily weighted towards the financial sector were hit particularly hard
- However, Japan is still a strong market according to fund buyers, having recovered quickly
Volatility in the Japanese market sent shockwaves across the globe at the beginning of August. The Bank of Japan’s decision to increase its benchmark interest rate to 0.25 per cent, a 15-year high, coupled with the strengthening of the yen against the dollar, led to a dramatic sell-off of Japanese shares. Institutional investors were concerned about the potential unwinding of the Yen carry trade (where investors borrow in cheap yen and deploy the money elsewhere).
However, in the face of the dip, Japan’s bounce back was swift. On 2 August, the Nikkei 225 fell 5.8 per cent, tumbling a further 12.4 per cent on 5 August, but then proceeded to rise 13 per cent over the next five days. What investors should now consider are, first, how did individual Japanese funds fare during the sell-off? And secondly, what is the outlook for Japan moving forward?