AJOT’s NAV fell -1.6% over the month. Share price performance of the underlying companies in Yen was healthy, with TSI Holdings the standout contributor, whose share price gained +20% adding 110bps to performance. T Hasegawa and NC Holdings detracted, with a more difficult cost environment weighing on profits.

It was Yen weakness which weighed on the NAV, as Kazuo Ueda, the newly appointed Bank of Japan (BoJ) governor, disappointed those anticipating a more aggressive path towards rate rises, with a cautious tone on the ending of the BoJ’s Yield Curve Control (YCC). With January CPI coming in at 4.3%, the highest since 1981, we think it isn’t a matter of if YCC will end but when, which would be a boon for the Yen.

AJOT had a strong month, with NAV growth of +5.4%. This came despite Japanese small companies lagging buoyant markets, with the MSCI Japan Small Cap returning +1.6% compared to the MSCI Japan’s +3.8% and the MSCI World +4.6% (all in GBP).

It was an encouraging month, with two large holdings, TSI Holdings and Shin-Etsu Polymer, seeing their shares price rise by +18% and +14%, respectively, together contributing 184bps to performance. There were few detractors, with LOCONDO being the largest with a -6% share price decline reducing performance by 28bps.

AJOT’s NAV increased +4.5% over the quarter, aided partially by a weakening of the Pound against the Yen which added +2.4% to returns. During the quarter, for the first time in almost three years, the British members of the investment team visited Japan. The trip focused on existing holdings where we met the presidents/chairmen of six of our top ten positions and three companies granted us access to their factory, logistics warehouse and R&D centre respectively. Meetings were cordial and constructive in what was for many companies their first time meeting us face-to-face.

AJOT’s NAV increased by +3.5% over the month. DTS was the largest detractor giving up part of its gains from earlier in the year, while the share prices of Digital Garage, Teikoku Electric and Tokyo Radiator increased by double digits.

Following hot on the heels of AJOT’s AJBell Japan Equity Active win in September, this month we were delighted to collect the Citywire award for the Best Japanese Equities trust. AJOT’s performance since launch has been a testament to the success of finding undervalued, high-quality companies and engaging with management to unlock value. It hasn’t been the easiest period for small-cap Japanese companies, but the performance highlights the Trust’s ability to generate attractive returns regardless of market conditions.

A rather glum NAV return of -2.5% for the month masked what was a respectable return in Japanese Yen of +3.2%. Japan’s core CPI reached 3.0% in September, the highest since 1991 after adjusting for consumption tax rises. The Bank of Japan’s unwillingness to adapt its yield control policy in the face of inflation and rising global rates continues to weigh on the Yen. While our investment decisions are not predicated on the direction or timing of a Yen recovery, we don’t believe the status quo is sustainable and should the BoJ change its policy, a strengthening Yen would be a huge boon to returns.

AJOT’s NAV increased +4.5% over the quarter, aided partially by a weakening of the Pound against the Yen which added +2.4% to returns. During the quarter, for the first time in almost three years, the British members of the investment team visited Japan. The trip focused on existing holdings where we met the presidents/chairmen of six of our top ten positions and three companies granted us access to their factory, logistics warehouse and R&D centre respectively. Meetings were cordial and constructive in what was for many companies their first time meeting us face-to-face.

Over the month, our companies finished reporting earnings. Weighted operating profits grew in aggregate by +2% year-on-year, lagging sales growth of +11%. Over two-thirds of the companies in the portfolio saw margins decline year-on-year which was expected given price increases lag cost pressures. However, we are seeing promising signs that our companies have been better able to pass on cost increases than in the past, as Japanese customers and consumers are accepting the inevitability of the first real inflation since the early 1990s. In fact, we’ve found that some companies have been surprised by their ability to increase prices. Shin-Etsu Polymer is a case in point, seeing sales and profits rise +20% and +55% respectively last quarter.

AJOT’s NAV increased by +8.3% over the month, aided slightly by a +1.7% strengthening in the Japanese Yen. The strong performance was broad-based across the portfolio, with only one company, Fujitec, detracting from returns.

The ruling LDP coalition solidified its position by comfortably winning a majority in the upper house elections, a vote that was overshadowed by the shocking and tragic assassination of former Prime Minister Shinzo Abe at the start of the month. Inflation in June ticked slightly higher to a still manageable 2.4% (headline CPI) with no change to the BoJ’s expansionary monetary policy.

After the end of the quarter, it was with great sadness that former Prime minister Shinzo Abe passed away. His death was a shocking tragedy. It has taken a number of years for companies/management to buy into corporate governance reforms, but there is now clear evidence of a shift in attitudes amongst corporate Japan, and that is one of the many important legacies of Shinzo Abe.

AJOT’s NAV fell -3.8% over the month, due almost entirely to a -3.4% weakening in the Japanese Yen. In local currency terms it was a relatively good period for the Japanese stock market with the MSCI Japan holding up well, returning -4.4% vs the MSCI Europe -9.0% and the S&P 500 -16.2%.

AJOT’s NAV increased by +3.0% over the month, as the portfolio’s companies finished reporting earnings. Our companies are not immune to rising raw material costs, and more of them than not saw margin pressure in the last quarter. However, our companies, which generally have good levels of pricing power, have expressed that they expect to pass on most of the cost increases next year and the impact on margins should subside. For those holdings with a March year-end, dividends increased by an average of 16% with five companies announcing new share buybacks, joining three companies who have ongoing programs.