“S&P 500” and “All Country Index” Boom Due to Weak Yen

Why is currency diversification less effective?

To begin with, I would like to add some additional information on why the impact of the dollar-yen rate is nearly 90%, even though the countries, regions, and currencies in which we invest are diversified.

When you trade yen with a currency other than the dollar, you basically buy dollars with yen first, and then use those dollars to buy the currency you originally wanted to buy. For example, when buying euros with yen, the procedure is to buy dollars with yen and then buy euros with those dollars. Thus, when investing in developed or emerging countries other than Japan with Orcan, once you buy dollars, you are buying dollars.

The reason why this procedure is used is that the trading volume of currencies other than the yen and the dollar is not large, so directly placing a large volume of buy orders will cause the rates to fluctuate greatly. The dollar, the key currency with high liquidity and narrow price range, has a certain volume of transactions with all currencies, so transactions are stable.

Even if you exchange yen to dollars to local currency and hold the local currency, you will continue to be affected by the dollar. In the foreign exchange market, for example, the “Euro-Yen” rate is displayed as “1 euro = 165 yen,” but that is a figure calculated by multiplying “euro/dollar” and “dollar/yen. The combination of currencies other than the dollar and yen is called “cross yen,” but the cross yen rate itself is affected by the dollar-yen rate. This is the background of the strong influence of the dollar-yen rate, even if the currencies are diversified.

Orkan’s investment report (overall version) lists the currencies used for the year-end valuation of foreign currency denominated assets. Those interested should refer to it.

What You Need to Know about Mutual Funds for Long-Term Investments

Recently, there has been a noticeable increase in the number of people close to me who say, “I am investing in Orkan through NISA. However, very few people understand the essential details, such as the impact of exchange rates. While it is true that understanding the mechanics does not necessarily improve investment performance, there are at least some things that one should know about the products to which one is allocating one’s valuable assets.

This is necessary in order not to panic if the excessive depreciation of the yen is corrected and the yen appreciates, or if the S&P 500 or the Orcaans unexpectedly decline.