Unhedged Japan funds rose 0.3% on the yen; VGK fell 1.9% after the ECB hike
In the week through Friday, September 11, 2026, iShares MSCI Japan ETF EWJ returned 0.28% in dollars while the Nikkei 225 fell 1.6%; Vanguard FTSE Europe ETF VGK fell 1.87% after the ECB raised its deposit rate 25 basis points to 2.50%.
The yen's whole year arrived in one week. Invesco CurrencyShares Japanese Yen Trust FXY, which holds yen, was unchanged for 2026 through Friday, September 4. It then rose 1.7% through Friday, September 11.
Japanese stocks had a down week in Tokyo and an up week in dollars. The Nikkei 225 declined 1.6%, from 65,020.94 to 64,011.34. iShares MSCI Japan EWJ, which holds Japanese stocks and leaves the yen unhedged, still gained 0.28%. iShares Currency Hedged MSCI Japan HEWJ fell 1.4%. WisdomTree Japan Hedged Equity DXJ, a $7.0 billion fund that holds Japanese stocks and hedges the yen, fell 1.5%.
Unhedged Japan finished higher as the yen rose
- EWJ · 98.56
- HEWJ · 64.26
- FXY · 59.68
That 1.7 percentage-point gap between EWJ and HEWJ is the yen's week. For a second consecutive week, the currency covered a decline in Tokyo.
The two Japan equity funds remain nearly tied for 2026: EWJ is up 22.7%, HEWJ 22.6%, DXJ 23.8%. Over 12 months FXY is still down 4.4%. Hedging Japan has not cost you this year. It cost you this week.
The ECB hiked as oil reached $100
On Thursday, September 10, the European Central Bank raised its three key rates by 25 basis points, taking the deposit rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%, effective September 16. It was tightening into an oil shock. West Texas Intermediate rose 9.4% on the week, from $91.48 to $100.05. Brent rose 8.7%, from $96.28 to $104.61. Both pulled back on Friday after a sharp Thursday advance.
The bank said the conflict in the Middle East continues to generate inflation pressure and that inflation will remain well above target for an extended period. Its staff now sees headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, against growth of 0.9% this year. Reuters on Thursday, September 10, tied the fall in European shares to the hike and to inflation from soaring energy prices.
The STOXX Europe 600 fell 1.7%. Germany's DAX dropped 1.9%, the CAC 40 1.2%, the FTSE 100 1.7%. Vanguard FTSE Europe VGK, which holds large-, mid- and small-cap stocks across developed Europe, fell 1.87% to $90.02. That is a local-market week, not a translation week.
The eurozone pair makes the currency's non-contribution plain. iShares MSCI Eurozone EZU, which leaves the euro unhedged, fell 1.2%. iShares Currency Hedged MSCI Eurozone HEZU, which strips the currency out, fell 1.3%. Seven hundredths of a percentage point is not a currency story. Germany was the weak sleeve: iShares MSCI Germany EWG dropped 2.3%.
Hedging Europe has still paid over the year. HEZU is up 13.4% for 2026; EZU is up 10.5%; VGK is up 9.6%. This week did not widen that gap. It just marked the stocks down.
Unhedged Japan was the only sleeve that finished the week higher.
The Bank of Japan meets Thursday and Friday, September 17 and 18. Its policy rate remains around 1.0%. Analysts polled by Reuters on Friday, September 11, expect a rise to 1.25% at that meeting, then to 1.5% by the end of March 2027 and to 1.75% after that. That expected path is a candidate account of the yen's 1.7% week, not a proof of it. The meeting could extend that gain or reverse it.
Frequently asked
Why did Japanese stocks fall in Tokyo but rise for US investors?
The yen rose 1.7% on the week, and unhedged EWJ converts Japanese stocks back into dollars, so the currency more than covered the Nikkei's 1.6% decline.
Did hedging Japan hurt investors this year?
No: the hedged and unhedged Japan funds are nearly tied for 2026, so hedging cost you this week, not the year.
Was Europe's drop a currency story?
No: unhedged and hedged eurozone funds fell within seven hundredths of a percentage point of each other, so the markdown came from the stocks themselves.
What could change the yen picture next?
The Bank of Japan meets September 17 and 18, and analysts polled by Reuters expect a rise from around 1.0% to 1.25%, which could extend or reverse the yen's gain.