The fall compared to a total return of -0.2% the MSCI Japan Small Cap index, amounting to an underperformance of 8.5%.
In a statement, chair Alexa Henderson said the half year results were an extension of the poor performance which began in early 2022, and are due to the trust investing in growth stocks.
She pointed out the trust’s performance had improved in the three months since the end of September, delivering a return of 5.4% in NAV terms and outperforming its benchmark by 1.6%.
This, she said, is “encouraging and the hope is that investors may be beginning to appreciate that the situation in Japan is markedly different from that in other markets”.
In their outlook, the trust’s investment managers stated that while there have been some concerns in Japan about cost pressures from global inflation and a weaker yen, “in contrast to developments in other developed economies, to date there are few signs of inflation in either wages or rents”.
Growth stocks have suffered since Russia’s invasion of Ukraine in February added to investors’ concerns about rising inflation, and have also been hit by the subsequent raising of interest rates around the world.
Japanese growth stocks were also caught up in this sell-off, however Xuming Tao and Naohiro Ozawa, investment managers for the trust, said inflation pressures have been much “more subdued in Japan” than other major economies.
Moreover, the Bank of Japan has “so far shown no signs of tightening its ultra-loose monetary policy stance”, they added.
The managers expect Prime Minister Fumio Kishida to continue to pursue the policies and reforms implemented by the previous two Prime Ministers, including the implementation of structural reforms such as digitalisation and decarbonisation.
Meanwhile the Japanese government has lifted its ban on inbound tourism in October 2022, in a major policy shift after nearly two and a half years of strict Covid restrictions.
At the stock level, the top detractors from returns for the trust included MEC, Taiyo Yuden and Tosho, companies which are involved in semiconductor supply chains and suppliers of other electronic components.
These performed poorly over the period due to macroeconomic uncertainty and concerns over ongoing supply constraints, but the trust sees “great potential” for them over the longer term.
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