Dodge & Cox doesn’t comment on the yen — although a trio of its picks (Sony, Hitachi and Matsushita) largely helped it beat the MSCI EAFE-Japan — but says the following on its Dodge & Cox International Stock Fund (DODFX: 23.07 +1.14%) fact sheet for the quarter-ended Dec. 31, 2007:

As certain currencies have risen relative to the U.S. dollar, benefiting the Fund’s past returns, we have grown more concerned about the possibility of a reversal of this trend and the negative effect this could have on the Fund’s future returns. We are especially concerned about the potential for the Euro and Pound Sterling to depreciate against the U.S. dollar. These currencies caught our attention in view of how overvalued they both appear to be based on fundamental measures of “fair value,” such as purchasing power parity. We deemed the overvaluation sufficiently large that we sought to mitigate the potential impact on long-term returns by hedging a portion of the Fund’s exposure. We continue to find attractive long-term investment opportunities in individual companies which are predominantly Euro and Pound Sterling-centric businesses and do not want to forgo these investments because of exchange rate concerns. Hedging these currencies enables us to maintain our investment flexibility and focus on fundamental company research.

As for the yen, further yen strength certainly helps the converted currency value of shares for DODFX, but keep in mind the double-edged nature of forex, in which ordinary shares will face renewed downward pressure in a kneejerk like reaction. This makes for some interesting investment strategies! (See also: Implications of a Strong Yen).