Investors are discussing ex-US developed markets’ out-performance of domestic equity gauges. The gaps between some of the relevant ETFs and U.S. equivalents are noticeably large. Japanese stocks are major contributors to that trend. Take the case of the WisdomTree Japan Hedged Equity Fund (DXJ ).
One of the largest funds in the Japan ETF category, DXJ is higher by 25.30% year-to-date. Advisors and investors looking for explanations as to why DXJ performed so well this year should consider “Sanaenomics.” This colloquialism refers to the economic agenda of new Japanese Prime Minister Sanae Takaichi.
Takaichi’s economic agenda extends the pro-market reforms of her predecessors. She added emphasis on sectors and industries that feature heavily in DXJ. This indicates that the ETF merits consideration heading into 2026.
DXJ Could Be 2026 Star
The $4.7 billion DXJ has a plethora of tailwinds heading into 2026, many of which are attributable to Sanaenomics.
“A key pillar in Sanaenomics is targeted spending on strategic sectors like AI, semiconductors, energy and defence in a bid to strengthen economic security,” noted Amova Asset Management. “These policies are intended to strengthen Japan’s resilience against geopolitical and supply chain risks. The plan to increase spending on defence is part of the government’s goal to raise expenditure towards 2% of Japan’s GDP and target advanced technologies.”
Regarding elevated defense spending in Japan, that’s material to DXJ investors. The ETF allocates 24.31% of its weight to industrial sectors – it’s largest sector exposure. On the artificial intelligence (AI) front, that’s pertinent, too, because tech stocks account for 10.44% of the DXJ roster. Importantly, some of the factors that supported the October rally by Japanese stocks could provide the foundation for more DXJ upside in 2026.
Supporting Factors
“A number of positive factors supported Japanese stocks, including rising US stock prices thanks to an outlook for additional rate cuts by the US Federal Reserve and strong earnings results from major US semiconductor companies related to generative AI, as well as the US-China summit potentially leading to a comprehensive agreement to ease trade tensions,” added Amova. “At the same time, in Japan the formation of a coalition government between the LDP and the Japan Innovation Party raised hopes for proactive economic stimulus policies, providing further tailwinds for equities.”
Additionally, a potential boon for DXJ is Takaichi’s reputation for favoring monetary easing. This implies the Bank of Japan could let the yen gradually weaken, potentially supporting the case for DXJ’s currency hedging structure.
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