T. Rowe Price Japan Fund commentary for the second quarter ended June 30, 2015.
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T. Rowe Price Japan Fund – Environment
The Japanese government’s efforts to pull the country out of its multidecade pattern of deflation and stagnating economic growth appear to be working, as investors continued to bid up Japan’s stock market. Japan’s first-quarter economic growth was revised sharply higher to an annualized rate of 3.9% to reflect stronger-than-estimated capital expenditures. Japanese consumers increased spending for the first time in more than a year in May. The weak yen provided a boost to Japan’s large export sector, spurring sales for automakers and other industries. However, consumer prices rose a scant 0.1% for the year through May, well shy of the Bank of Japan’s 2% target.
T. Rowe Price Japan Fund – Performance
The T. Rowe Price Japan Fund returned 3.56% in the quarter compared with 3.73% for the TOPIX Index and 3.95% for the Lipper Japanese Funds Average. For the 12 months ended June 30, 2015, the fund returned 6.05% versus 8.91% for the TOPIX Index and 11.28% for the Lipper Japanese Funds Average. The fund’s average annual total returns were 6.05%, 10.68%, and 3.42% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund’s expense ratio was 1.05% as of its fiscal year ended October 31, 2014.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Japan Fund charges a 2% redemption fee on shares held 90 days or less. The performance information shown does not reflect the deduction of the redemption fee; if it did, the performance would be lower.
T. Rowe Price Japan Fund – Portfolio Highlights
Relative to our benchmark, the fund is more heavily focused on faster-growing and domestically focused firms that we think are likely to offer superior opportunities over the long run. Nevertheless, the fund’s investments in trading companies and distributors offered the biggest boost to absolute results in the quarter as the weak yen continued to boost Japan’s export competitiveness. Financials and consumer discretionary holdings were also strong. Health care was the sole sector to detract from results, with weakness concentrated in pharmaceutical holdings.
T. Rowe Price Japan Fund – Outlook
We believe that the instances of Japanese companies defying the skeptics by transforming business practices and governance standards is growing. This should help to deliver profit growth and generate shareholder returns. The volume of shareholder buybacks is increasing, and merger and acquisition activity is slowly emerging. Where implemented effectively, we expect transformational actions to be rewarded through higher valuations. This change in corporate mentality is certainly a longer-term theme that should reward investors’ patience. Given the uncharted territory of Abenomics and the likelihood of near-term disappointments, there is every chance that sentiment will fluctuate as the efficacy and scope of Prime Minister Abe’s reforms are called into question. For those investors able to take a longer-term view, we believe there is a fruitful investment opportunity encapsulated within the Japanese journey. Our central scenario is that Abe’s political will to make, in his own words, “Japan a great and robust country,” is real. Policy efforts should provide further traction in the next 12 to 24 months, and we will continue to look for further signs beyond this time horizon that Japan is turning into a durable improvement and self-help story.
