The Japan stock market has boomed over the past year, reaching record-breaking highs and closing above its 1989 peak 34 years later.
There has also been an upward tick in market enthusiasm, and elevated interest from high-profile investors like Warren Buffett has also boosted this sentiment.
Looking to gain exposure to Japan equities? In this article, we delve into 3 Japan-focused exchanged-traded-funds (ETFs) you can consider to buy and hold for the long-term.
Why Invest in Japan ETFs
Hassle-Free
Investing in Japan-focused ETFs allows you to diversify your investments easily by eliminating the hassle of having to select individual stocks or bonds.
ETFs also provide you trading flexibility since they can be traded anytime during market hours unlike mutual funds.
Positive Market Outlook
The market has generally adopted a more positive outlook for the Japan market thanks to an exit from long-lasting deflation, the end of negative rates, and rising wages.
According to BlackRock, more than US$5.2B has been invested in Japanese exchange traded products in 2024, and foreign investors are only just turning more positive on Japan, suggesting further growth.
Corporate Governance Reforms
Japanese companies have shaken off their reputation for neglecting shareholders after regulatory changes, resulting in a record US$180B returned to shareholders last year through buybacks and dividends.
This long overdue shift has been driven by a decade of pressure led by the Tokyo Stock Exchange and points to sustainable changes and not a transient trend.
Shifting Financial Landscape
With inflation, positive interest rates, rising wages, and a new tax-free investment scheme, Japanese households are poised to shift a growing share of their cash into stocks.
This may spark a cycle of inflation, wage growth, asset income, and consumer spending, benefiting stocks and the economy.
Risks and Considerations of Investing in Japan ETFs
One factor to consider before you decide to invest in ETFs – as opposed to single stocks – is the somewhat reduced level of control you have over the range of securities held in your investment portfolio.
This is because, with ETFs, an index provider works with a professional fund manager to select the individual investments that make up the fund (and their weights). Set against this, of course, is the transparency, convenience, and low cost that ETFs provide, as well as the potential to gain exposure to a larger universe of securities than an individual investor may be aware of.
Japan ETFs to Buy and Hold for the Long-Term
iShares MSCI Japan ETF (EWJ)
| Assets under management (AUM) | 16.48B |
| Average daily trading volume | 8,232,177 |
With over $16 billion in assets, the iShares MSCI Japan ETF tracks the MSCI Japan Index and is designed to provide exposure to large cap and mid cap equities within Japan.
The fund is composed of 218 holdings and has 26.91% of its assets in its top 10 holdings.
iShares Currency Hedged MSCI Japan ETF (HEWJ)
| Assets under management (AUM) | 359.13M |
| Average daily volume | 164,790 |
The iShares Currency Hedged MSCI Japan ETF is designed to track the performance of the MSCI Japan 100% Hedged to USD Index. It provides investors a broad exposure to a wide range of Japanese companies that may potentially benefit from Japan’s stimulus policies.
The industrials, consumer discretionary, and information technology sectors are the fund’s top industries, accounting for more than 50% of the fund’s portfolio.
iShares JPX-Nikkei 400 ETF (JPXN)
| Assets under management (AUM) | 388.86B |
| Average daily volume | 1,513 |
The iShares JPX-Nikkei 400 ETF seeks to track the performance of the JPX-Nikkei Index 400 Total Return Index. The index is composed of companies that pass a strict screening process based on their profitability, 3-year return on equity, operating profit, and market-value.
This ETF is made up of a portfolio of 399 companies including prominent companies like Toyota Motor Corp, Mitsui Ltd, Tokio Marine Holdings Inc, and Hitachi Ltd.
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