Japanese equities declined over the quarter. Along with the geopolitical concerns facing most global markets, anxieties about an economic slowdown in China also resurfaced and prompted investors to repatriate money into safe-haven assets, including the yen. This currency strength hit the stocks of Japanese exporters, in particular. Japan's looming consumption tax hike also played a role in dampening the domestic stock market. On the upside, however, retail sales rose unexpectedly as consumers increased spending ahead of a hike in the consumption tax.
The Japan Fund returned −5.10% in the quarter compared with −4.82% for the TOPIX Index and −4.45% for the Lipper Japanese Funds Average. For the 12 months ended March 31, 2014, the fund returned 9.51% versus 8.24% for the TOPIX Index and 8.89% for the Lipper Japanese Funds Average. The fund's average annual total returns were 9.51%, 12.94%, and 2.20% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 1.06% as of its fiscal year ended October 31, 2013.
The information technology sector continues to be the fund's largest overweight, as we believe our selection of holdings have strong fundamentals and should benefit from industry consolidation. Conversely, we are significantly underweight in banks. Competition within the industry is excessive, and managements are less shareholder friendly than in other areas, with a minimal appetite for buybacks or increasing payouts, for example.
We believe domestic consumption driven by wage inflation needs to be the next growth engine for a sustained recovery in Japan. Prime Minister Shinzo Abe has been applying intense pressure on corporations to raise wages in order to support the Japanese consumer and reverse a 20-year cycle of wage and price deflation. Labor market tightening, healthier corporate profits, and corporate tax incentives should eventually boost wages. While bonuses are starting to increase, however, we have yet to see firm evidence of a rise in base wage rates, making 2014 a critical year for evidence of a positive wage cycle to emerge.
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.