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Yen Hedge Outperforms: Is Your Japan ETF Missing Out?
14 Jul
Summary
- Currency-hedged fund DXJ significantly outperformed unhedged EWJ.
- Yen weakness eroded gains for U.S. investors holding EWJ.
- DXJ neutralizes yen's impact, capturing equity gains effectively.
As of July 8, 2026, the WisdomTree Japan Hedged Equity Fund (DXJ) has significantly outperformed the iShares MSCI Japan ETF (EWJ), a common choice for U.S. investors seeking Japanese market exposure. EWJ, which tracks the MSCI Japan Index, holds hundreds of Japanese companies but carries unmanaged yen exposure. This means a weakening yen directly reduces the dollar value of EWJ's returns, even if the underlying stocks rally in Tokyo.
This year, the yen depreciated substantially against the dollar, creating a notable currency headwind for EWJ holders. While EWJ returned 15.23% year-to-date, DXJ, which employs currency hedging through forward contracts, delivered a superior return. This divergence is even more pronounced over longer timeframes, with DXJ showing a much larger cumulative gain compared to EWJ over five years. DXJ's strategy is designed to capture equity gains while removing the 'noise' of currency fluctuations, making it a deliberate bet on Japanese equities without the currency risk.
