Unwelcome as they have been, the big shifts in markets in recent months are at least consistent with received wisdom. Growth stocks and bonds should be expected to struggle in the face of higher interest rates, while commodities seem like an obvious winner as inflation soars. That adds a small sense of order amid the market havoc of the last year.
Not all assets have behaved as we might assume, however. The Japanese yen is widely viewed as a safe haven currency and tends to strengthen in times of uncertainty. It rocketed versus sterling in February and March 2020 as concerns about lockdown measures helped tip global markets briefly into a tailspin, for instance. At the time, that would have boosted a sterling investor’s returns from Japanese equities and offset some of the pain in a global portfolio.
But fast forward to the sell-off that began late last year and the yen has failed to live up to its usual reputation, tumbling versus both sterling and the US dollar. That in turn has lessened the appeal of Japanese shares for UK investors: to cite one of the better-known indices, the Topix is down by 3.1 per cent for the year to 28 July in sterling terms – a stark contrast to the 3.6 per cent gain it has made in local currency terms.