Japan stocks and the related ETFs are coming off scintillating performances in 2025. They currently rank among the best performers in developed markets. Last year, the MSCI Japan Index surged 25.9%, outperforming the S&P 500 by 820 basis points.
The WisdomTree Japan Hedged Equity Fund (DXJ ) did even better. That venerable ETF gained nearly 33%. A sequel may be a big ask, but that doesn’t mean advisor and investors should dismiss Japanese equities and ETFs like DXJ this year. In fact, 2026 could be another year of exciting showings by stocks in the Land of the Rising Sun.
The bull case for Japanese stocks and DXJ — one of the most prominent ETFs in the category — is rooted in solid, hard-to-ignore fundamentals. Attribute some of those to Prime Minister Sanae Takaichi. The pro-markets PM has already proven to be intent on improving Japan’s relationship with the U.S.
DXJ Can Deliver Again This Year
As noted above, Takaichi’s policies have already benefited investors. Due to the breadth of the prime minister’s economic agenda, some experts believe that will continue this year.
“The new coalition government, under Japan’s first female prime minister, has signaled a willingness to use spending measures to stimulate domestic demand and indicated that it is focused on strengthening the supply side by formulating measures to promote public-private investments in 17 strategic areas,” noted Amova Asset Management.
Those areas of emphasis could have profound implications for a variety of sectors. That includes industrials and technology, which combine for more than 35% of the DXJ portfolio. Additionally, Takaichi shows a willingness to work with the Bank of Japan — a departure from what’s seen in the U.S.
“The administration has also emphasised close coordination with the Bank of Japan (BOJ). The central bank has already reduced an element of uncertainty by clarifying its long-term approach to unwinding its exchange-traded fund (ETF) holdings, allowing markets to focus more on fundamentals,” added Amova. “While monetary policy is expected to remain on a normalisation path, both fiscal and monetary authorities appear aligned in supporting sustainable economic growth.”
Corporate governance also figures prominently in the Takaichi agenda. Many Japanese companies, including plenty of DXJ components, hold massive amounts of cash. She knows that some of that cash should be directed to shareholder rewards.
“This could potentially lead to a rise in the number of corporate actions, including higher shareholder distributions, capital expenditure or restructuring. These developments should support share prices, particularly for companies where large cash balances have historically weighed on valuation,” concluded Amova.
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