Returns on Japanese Sword Investment: Asset Value of Japanese Swords Seen Through Exchange Rate Risk and Domestic Price Trends

Can Japanese Swords Be Assets? — Their Potential as Investment Objects

In recent years, Japanese swords have attracted attention as a sector of fine art investment. They exhibit low correlation with traditional assets such as stocks, real estate, and gold, and also serve as an inflation hedge. Particularly with the convergence of increased demand from overseas investors and ongoing yen depreciation, prices of nationally designated treasures and important cultural properties have shown an upward trend.

However, Japanese sword investment has a risk-return structure fundamentally different from typical financial instruments. Drawing on actual transaction data and market trends, this article explains the real returns and cautions regarding Japanese sword investment.

Price Trends in International Auctions

Japanese swords began to be traded in international auction markets from the 1980s onward, with major venues including Bonhams (UK), Christie's (UK/US), and Heritage Auctions (US).

Notable price increase examples:

• National Treasure-class tachi (Southern and Northern Courts period): From around ¥100 million in the 1990s, some evaluation cases reach ¥300–500 million in the 2020s
• Important Cultural Property blades (Kamakura period): With overseas collector demand, price levels 2–3 times higher than 1990s baselines
• Important swords (Edo New-New Blade period): Well-preserved examples command 20–30% premiums over domestic prices in overseas sales

It is important to note that these represent trends at the very highest tier; general sword prices have not necessarily risen proportionally.

Yen Depreciation and Japanese Sword Prices — The Two Sides of Exchange Rate Risk

Yen depreciation affects Japanese sword prices in two directions.

Positive Effects of Yen Depreciation

For foreign buyers, yen depreciation makes Japanese fine art relatively cheaper. For example, purchasing a ¥1 million sword at 1 USD = ¥130 costs about $769, but at 1 USD = ¥155 the same ¥1 million costs about $645. This price advantage stimulates foreign demand, and domestic resale prices benefit from this upward pressure.

Negative Effects of Yen Depreciation (For Japanese Investors)

Conversely, when Japanese investors purchase at international auctions, yen depreciation raises acquisition costs. Even if the yen-denominated valuation remains unchanged, the real value in dollar terms depreciates alongside weakening yen. If long-term yen weakness continues, one must distinguish whether sword price increases in yen terms represent "true asset growth" or merely "reflection of yen-based inflation."

Exchange Rate Hedging Methods

Exchange rate hedging for Japanese sword investment is practically difficult. Partial hedging through FX or currency futures is possible, but complete hedging is challenging since the timing of sword sales cannot be predicted. For long-term holding, exchange fluctuation should be recognized as an "accepted risk" before making decisions.

Domestic Price Trends — Relative Values by NBTHK Rank

In the domestic market, authentication ranks from the NBTHK (Japanese Art Sword Preservation Society) serve as major price indicators.

In particular, "Special Important Sword" class blades by famous swordsmiths (Masamune, Sadatsugu, Ichimonji, Kobe-Bizen, etc.) stand out for scarcity, with examples appreciating 2–3 fold over the past 10–15 years.

Real Yield Calculation — After Deducting Maintenance and Storage Costs

Calculating real yields on Japanese sword investment requires accounting for the following maintenance costs.

Storage Costs (Annual):

• Dedicated sword bags and boxes: Initial cost ¥50,000–300,000 (varies by material)
• Humidity control (dehumidifying cabinets, air conditioning): Around ¥30,000–100,000 annually including electricity
• Polishing powder, oil, and maintenance tools: ¥10,000–30,000 annually
• Fire and theft insurance: Approximately 0.5–1% of appraised value

Transaction Costs:

• Purchase: Dealer commission 10–15% (20–25% at auction)
• Sale: Dealer commission 5–10% (on buy-back basis)
• Export: Cultural Affairs Agency approval, CITES certificate, packing, shipping fees

Authentication and Registration Fees:

• NBTHK review fee: Around ¥10,000–30,000 per sword (varies by rank)
• Municipal Education Board Sword Registration: Several thousand yen

Accounting for these, annual "investment costs" as a percentage of sword valuation typically run 2–4%.

For example, if a ¥2 million Important Sword is held for 10 years and sold for ¥3 million:

• Accounting profit: ¥1 million (50% gain)
• Total maintenance costs (10 years): Approximately ¥300,000–500,000
• Real yield: Approximately 2–3% annually (pre-tax)

This exceeds savings account returns, but given the risks involved, it cannot be considered a "safe investment."

Liquidity Risk — Can You Sell When You Want To?

One of the greatest risks in Japanese sword investment is low liquidity.

Unlike stocks, Japanese swords offer no guarantee of quick sale when desired. Liquidity particularly drops in these cases:

• Unnamed mass-produced swords: Limited demand; buy-back prices fall well below purchase price
• Damaged blades: Scratches, rust, or chipped edges cause value to plummet
• Swords with famous battle or warlord provenance (undocumented lineage): When provenance matters, inability to verify sharply reduces value

Conversely, "Special Important Sword" class blades enjoy demand from enthusiasts, collectors, and museums, making sale at fair market prices relatively achievable. However, sales completion often takes half a year to over a year.

Appropriate Investment Strategy — Long-Term Holding and Careful Selection

To realize meaningful returns from Japanese sword investment, the following strategies are considered effective:

1. Quality-First Approach: Limit to NBTHK Important Sword rank or higher. Unauthenticated and Preservation Sword class are unsuitable for investment purposes
2. Focus on Famous Smiths: Authentic works by master swordsmiths (Masamune, Osafune, Ichimonji lines, etc.) possess high price-sustaining power through scarcity
3. Long-Term Perspective of 10+ Years: Short-term trading sees profits consumed by transaction costs. Minimum 10-year holding periods are presumed
4. Enjoyment as Collecting: Framing in terms of cultural appreciation rather than pure investment makes liquidity challenges less burdensome
5. Portfolio Diversification: Target allocation of 5–10% of total assets, balanced with other asset classes

Conclusion — Realistic Assessment of Japanese Sword Investment

Japanese swords should be understood not as "certain appreciation investments" but as "long-term-hold specialty assets combining cultural and financial value."

Tailwinds—yen depreciation, growing overseas demand, rising cultural preservation awareness—certainly exist. However, maintenance costs, liquidity risks, authentication risks, and legal constraints (the Swords and Firearms Control Law) cannot be ignored. Those considering swords as investments should always consult with specialists (sword dealers, NBTHK examiners) and make informed decisions with proper knowledge.