Research Briefing | Oct 11, 2023

Shifting yield curves create a currency hedging opportunity

The divergence in yield curves across markets has been notable, with most experiencing significant upward shifts in the last two years. Japan, however, stands apart from this trend, presenting a unique opportunity for commercial real estate investors to focus on Japanese assets for both leveraging and currency hedging.

What you will learn:

  • The gap in yields between the dollar and the yen has reached levels not seen in decades, which has created highly favourable currency hedging conditions. The more modest movement in Japan’s rates also boosts the market’s attraction as it has maintained its status as having highly accretive debt terms for CRE investors.
  • While the use of gearing and currency hedging presents its own set of risks, five-year forecast returns across for the CRE sector are likely to fall short of required returns (or hurdle rates) in several major markets. Japan is the major exception to this rule.
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