Unhedged Japan rose 2.5% on the yen; Europe funds slipped

Tokyo's Nikkei 225 fell 2.1% in local terms over the week through Friday, September 4, from 66,405.56 to 65,020.94. The iShares MSCI Japan ETF AEWJ, which holds Japanese stocks and leaves the yen unhedged, still gained 2.5% in dollars.

The iShares Currency Hedged MSCI Japan ETF CHEWJ, the same MSCI Japan book with the dollar-yen overlay stripped out, gained 0.1%. A yen-hedged Japan equity fund, BDXJ, finished unchanged. Franklin's unhedged FTSE Japan fund AFLJP gained 2.4%, in line with AEWJ. Four Japan equity products, two hedging choices: the unhedged funds matched the Invesco CurrencyShares Japanese Yen Trust CFXY, which rose 2.5%. The hedged pair barely moved.

Bank of Japan Governor Kazuo Ueda said Tuesday that officials would discuss policy at the September 17-18 meeting, as they do at every meeting, with underlying inflation approaching the 2% target and more attention due on upside price risks.

Europe's funds fell 0.3%, and the euro did not offset it

Europe did not get a currency costume. The Vanguard FTSE Europe ETF AVGK, developed Europe stocks in dollars, fell 0.3%. The Xtrackers MSCI Europe Hedged Equity ETF BDBEU, the same region with currencies hedged back to the dollar, also fell 0.3%. The euro barely moved; the loss was the stocks.

Eurostat's flash estimate on Tuesday put euro-area annual inflation at 3.3%, up from 2.9% in July. Energy posted the highest annual rate, at 14.3%. The same week the WTI crude-oil fund BUSO rose 9.5%, with a 5.5% session on Tuesday. AVGK dropped 1.0% that Tuesday and recovered most of it by Thursday.

The iShares MSCI Germany ETF BEWG fell 1.6%, the weak end of the map. Siemens is 12% of that fund and fell 5.9%. The iShares MSCI France ETF BEWQ fell 1.1%. The iShares MSCI Eurozone ETF AEZU dropped 0.5%. The iShares MSCI United Kingdom ETF BEWU was the hold-up, up 0.1%. Broad Europe had a better week than the euro-area large-cap slice because London did not join Frankfurt and Paris.

None of that is new for 2026. BEWG is up 5.3% year to date. AVGK is up 11.7%. The Vanguard FTSE Developed Markets ETF AVEA, the developed-ex-U.S. workhorse, is up 18.9%. Germany's lag is a year-to-date gap, not a one-week print.

The developed sleeve was not a Europe-plus-Japan average

AVEA gained 1.0%. The iShares MSCI EAFE ETF BEFA, developed Europe, Japan, and Australasia, and not Canada or Korea, gained 0.6%. Currency-hedged EAFE, CHEFA, gained 0.1%: even in the broader developed book, the yen was most of the dollar return.

AVEA is not a Europe-and-Japan blend. As of June 30, Japan was 21% of its stocks, Korea 10.2%, and Europe 49%, with Canada another 10.5%. MSCI EAFE excludes Korea and Canada; the FTSE index AVEA tracks does not. Samsung Electronics is still the largest holding, at 2.5%, and SK hynix is third, at 1.9%. The iShares MSCI South Korea ETF CEWY rose 4.8%, most of it on Friday. Canada, AEWC, added 0.5%; Australia, BEWA, 0.8%. A holder of AVEA had a 1.0% week with Japan-in-dollars, a Korea sleeve EAFE does not own, and the rest of the Pacific more than offsetting a small European loss. A holder of AVGK had only the loss.

The hedge split that defined Japan did not show up in Europe, and it did show up in the EAFE pair.

Hedging Japan had been the winning side of that pair for a year: CHEWJ is up 41.1% over 12 months, AEWJ 30.2%, with the yen trust down 5.3%. This was the week the hedge stopped paying. The Bank of Japan meets September 17-18. The European Central Bank announces its rate decision first, on Thursday, September 10.