Comparing Japan and US Sector Returns: Why the Currency Column Matters

Sector tables quote each market in its own currency: US sectors in dollars, Japanese sectors in yen. That is the right way to see what each market did locally. It is the wrong way to decide which market did better for you, unless you hold both currencies. Educational only, not investment advice.

The basic arithmetic

For an investor whose home currency is the dollar, the return on a yen asset is roughly:

dollar return ≈ yen return + change in the yen's value against the dollar

More precisely, (1 + yen return) × (1 + yen change) − 1. For small moves the simple sum is close enough.

A worked example: a Japanese sector rises 5% in yen over a month. Over the same month the yen weakens 4% against the dollar. The dollar-based holder earns about (1.05 × 0.96) − 1 ≈ +0.8%. The headline "+5%" was real in Tokyo and almost invisible in New York.

Why it cuts both ways for Japanese sectors

The yen does not just sit on top of Japanese returns; it also drives them. A weaker yen tends to lift exporters' reported earnings (Autos, Electric & Precision, Machinery) and pressure importers of fuel and materials. So in a weak-yen month you often see:

• exporters strong in yen,
• that strength partly cancelled for a foreign holder by the currency.

In a strong-yen month the pattern tends to reverse. This is why domestic-demand sectors (Retail, Foods, Electric Power & Gas) can look better to a foreign investor than their yen returns suggest when the yen is rising.

A fair comparison in three steps

1. Read each market in its own currency first. That tells you what the local market thought.
2. Note the currency move over the same window. One number: how much the yen moved against the dollar over one week or one month.
3. Adjust only when you are comparing across markets. If you are asking "Japanese Banks or US Financials?", put both in the same currency before you compare.

The Japanese inputs for this comparison are the sector returns in yen, before any currency adjustment.

Hedged versus unhedged

Some funds that hold Japanese stocks hedge the currency, which roughly removes the yen term from the result (at a cost that depends on the interest-rate gap between the two countries). If you use hedged funds, the local yen return is closer to what you actually experience. If you use unhedged funds, the currency term is part of your result whether you look at it or not.

Where to see the local numbers

Sector Pulse (below) shows US sectors in dollars and TOPIX-17 sectors in yen, side by side, for 1W, 1M and YTD. Adding the currency move for the same window is the one extra step that turns it into a like-for-like comparison.