Advantages and disadvantages of foreign currency-denominated financial assets

Japan has been experiencing a prolonged period of low interest rates, and foreign currency-denominated financial assets are attracting attention.
Although foreign currency-denominated financial assets are subject to exchange rate risk, they generally have the advantage of offering higher yields than yen-denominated assets.
So, I would like to tell you about the advantages and disadvantages of investing in foreign currency-denominated financial assets.

Benefits of investing in foreign currency-denominated financial assets

① Higher yields can be expected because the funds are invested in currencies with higher interest rates than the Japanese yen.
The US dollar, Australian dollar, and other major foreign currency-denominated financial products all have higher interest rates than Japan, and can be expected to offer higher returns than financial products denominated in yen.

②There is a possibility of making a foreign exchange gain
After investing in foreign currency-denominated financial products, if the yen is weaker than it was when you converted it back into yen, you may be able to make a profit from the exchange rate difference.

3. Asset diversification across multiple currencies
If inflation occurs, the value of the yen falls, and prices rise, the value of yen-denominated financial assets will decrease.
In this case, holding financial assets denominated in foreign currencies, not just yen, can prevent your assets from decreasing.

Disadvantages of investing in foreign currency-denominated financial assets

①Exchange fees apply
When purchasing foreign currency-denominated financial assets, exchange fees will be charged as yen will be exchanged for dollars.
In addition, an exchange fee will be charged when converting the funds back to yen at the end of the investment.

② There is a possibility of exchange losses
If the yen is stronger than it was initially when you convert it back into yen after investing in a foreign currency-denominated financial product, you may incur an exchange loss.

Recently, an increasing number of people are considering foreign currency-denominated life insurance, such as foreign currency-denominated whole life insurance and foreign currency-denominated individual pension insurance.
Hoken no Tobira handles foreign currency-denominated life insurance from multiple insurance companies.
Please feel free to contact us.

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