Japan's Stealth Bull Market: How U.S. Investors Can Get Exposure

Key Points

• Japan’s corporate governance reforms are driving stronger shareholder returns through buybacks, dividends, and improved capital efficiency.
• ETFs like EWJ and DXJ provide investors with different ways to gain exposure to Japanese equities, including currency-hedged strategies.
• Sony and Toyota offer contrasting opportunities, with Sony focused on diversified technology growth and Toyota representing a higher-risk turnaround play.

Japanese stocks have been an attractive option for investors looking for exposure outside of U.S. stocks. There have been many factors triggering the multi-year run, including corporate governance reform, record shareholder returns, and a weak yen.

The governance overhaul began with Japan's Stewardship and Corporate Governance Codes in 2014–15. This pushed companies to prioritize shareholder value over the old habits of cash-hoarding and cross-shareholdings—where companies held each other's stock to cement business relationships rather than generate returns.

Over a decade later, the overhaul has produced tangible results: more than 90% of listed companies now have meaningful independent board representation. Plus, the Tokyo Stock Exchange has ramped up pressure by threatening to delist companies that fail to meet capital efficiency standards.

This pressure has unlocked a wave of shareholder returns. Share buybacks have risen nearly 6x over the past decade; dividends have doubled, and companies are increasingly canceling repurchased shares outright rather than warehousing them.

The weak yen has amplified the story. Having lost roughly a third of its trade-weighted value over four years, the yen has fattened the overseas earnings of Japanese exporters and made Japanese assets attractively priced for foreign buyers, drawing record foreign inflows in 2025.

Has the Japan Trade Run Its Course?

Not yet, but there are some risks. Primary among them would be a recovery in the yen that would squeeze exporter margins. Plus, many companies now have valuations that make them less compelling. And despite the progress that’s been made, many companies are still dragging their feet on reform.

That’s not to say there are no risks. A yen recovery would squeeze exporter margins. Valuations are less compelling than they were. And many companies are still dragging their feet on reform.

But those are short-term concerns in a long-term bull market. Japan’s equity market is in the process of a structural shift that will make it compelling to long-term investors.

iShares MSCI Japan ETF Offers Broad Exposure to Japan

Many investors will choose exchange-traded funds (ETFs) as a way to gain exposure to Japanese stocks. One choice is the iShares MSCI Japan ETF NYSEARCA: EWJ. The fund invests in a representative sample of securities that are part of the MSCI Japan Index.

The fund has 184 holdings, but the key is that its holdings are weighted toward technology and industrials. These sectors face headwinds from the closure of the Strait of Hormuz, but also stand to make the largest reversal.

EWJ is up 12% in 2026 as of this writing. It’s also up 25% in the last 12 months and 35% over the last five years. That performance isn’t bad, but it does reflect the impact of a weakening yen.

The fund does have an expense ratio of around 0.5%, which is considered expensive.

But it has over $21 million in assets under management (AUM), and an average daily trading volume of around nine million shares.

WisdomTree Japan Hedged Equity Fund Removes Currency Risk

The WisdomTree Japan Hedged Equity Fund NYSEARCA: DXJ takes a different approach that investors may appreciate. The fund gives U.S. investors exposure to Japanese equities while hedging out the yen-dollar exchange rate.

That removes the drag of yen fluctuations, which shows up in the fund’s performance. The DXJ is up over 50% in the last 12 months and an impressive 185% in the last five years.

What may be even more attractive to investors is the fund’s structure.

It focuses on dividend-paying, expert-oriented Japanese stocks that are typically associated more with value than growth. 

The fund has an expense ratio of 0.48% and over $6.6 billion in AUM as of this writing.

Sony Balances Growth Opportunities With Near-Term Challenges

Investors considering single stock exposure would do well to consider Sony Group NYSE: SONY. The stock is up almost 500% in the last five years, though it’s down over 10% in 2026. 

That reflects the diverse nature of the company’s business, which includes disparate sectors ranging from consumer electronics, gaming hardware, an electric vehicle venture, and audio intellectual property.

SONY delivered mixed Q4 earnings for its 2026 fiscal year on May 7, with a beat on revenue offset by lighter-than-expected earnings per share.

The company will face impacts from rising memory costs as well as a supply shortage.

That’s one reason why analysts may have a Hold on the stock. But at 17x forward earnings, Sony is a solid choice for long-term growth and value.

Toyota Could Be a Contrarian Opportunity in Japanese Stocks

Toyota Motors NYSE: TM is the asymmetric play among Japanese stocks. TM is down 10% year-to-date and is only up about 20% in the last five years. That reflects the issues that have beset the auto industry.

Toyota delivered mixed results in its Q4 earnings for its 2026 fiscal year. And moving forward, the company still expects tariff headwinds. The company also acknowledged that its business transformation initiatives aren’t complete, which makes it unclear when it will be able to achieve its goal of 20% ROE (return on equity).

That said, TM still has a consensus price target of $290, which would give investors a gain of over 50%. There’s a lot that has to go in the company’s favor, but for investors willing to accept the risk, there could be a market-beating return.