The best Japanese ETFs to invest in right now pools together a number of stocks that are sensitive to the expansion and profitability of Japan’s economy.
Investors have the chance to get exposure to the economic growth and business profitability of Japan via the use of exchange-traded funds (ETFs) that are expressly directed toward the country.
Japan is the third biggest economy in the world as measured in terms of gross domestic product (GDP), as reported by the most recent figures from The World Bank. This evaluation is based on information from the year 2021.
During the time period of the pandemic, the economy of Japan had a major contraction; however, there are indicators that it may revive in the ensuing time period.
The economy grew at an annualized rate of 2.7% during the first three months of 2023. This expansion was primarily driven by large increases in the amount of money spent on goods and services purchased inside the country.
The International Monetary Fund forecasts that Japan’s Gross Domestic Product would increase by 1.3% in the year 2023, notwithstanding the ongoing inflationary challenges that the country will face.
The country is home to a number of well-known corporations operating on the global stage, including Honda Motor Co. (HMC) and Sony Group Corp. (SONY).
Investors in Japan Exchange-Traded Funds (ETFs) have the opportunity to potentially produce profits by capitalizing on the development of a variety of businesses and companies, including those listed above.
While the S&P 500 has exhibited a total return of over 16%, the MSCI Japan Index has shown a return of over 25% in the preceding year.
The following discussion will focus on the best Japanese ETFs to invest in right now.
If you have any questions or want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.
Table of Contents
Japanese ETFs on the Rise
The growing number of signs that Japan is on the path to recovery for prospective investors is encouraging.
One of the most widely followed market indices in Japan, the Nikkei 225, has lately achieved a level that has not been seen since the year 1990.
During this time period, it was projected that the value of real estate in Tokyo might reach as high as $139,000 per square foot. This figure was more than 350 times more than the value of comparable property in Manhattan.
With total assets of $11 billion, the iShares MSCI Japan ETF (EJW), which is generally considered as the most popular Japan exchange-traded fund (ETF), is now seeing significant inflows of money.
What aspects of a company are likely to attract investors? There are a lot of things to take into account.
The existence of low values should be taken into consideration as one of the factors.
There has been a considerable drop from the value of 61 times that was witnessed during the 1990s for the stocks that are now featured in the Nikkei 225 index, which are presently being traded at a price of 15 times their predicted future profits.
In addition, it is projected that profits for Japanese firms would climb by 2% for the current year, which stands in stark contrast to the 2% fall in earnings that was seen in the S&P 500.
As a result of the ongoing political tensions between the United States and China, Japan is also benefiting in a number of important ways. Recent years have seen Japan gain a reputation as a very alluring location for the placement of commercial assets.
This phenomenon is one of the factors that is helping to stimulate the growth of the economy. A protracted era of deflation has been brought to an end as a result of a positive trend in the annual growth rate of Japan’s Gross Domestic Product (GDP), which has witnessed a positive trend of 1.6%.
The weakening of the value of the Japanese yen compared to that of the United States dollar is another factor that helps to the expansion of export business.
A major cost advantage has been provided to Japanese exporters as a consequence of the depreciation of the Yen. This is due to the fact that any money acquired abroad will result in larger profits when measured in Yen domestically.
Best Japanese ETFs To Invest In
Franklin FTSE Japan Hedged ETF
Before taking into account any fees or other costs, the goal of this investment is to produce returns on investments that are highly correlated to the performance of the FTSE Japan RIC Capped Hedged to USD Index (also known as the FTSE Japan Capped Hedged Index), which is the benchmark against which the fund will be measured.
The fund will normally invest at least 80 percent of its total assets in the individual securities that make up the FTSE Japan Capped Hedged Index as well as the depositary receipts that stand in for these individual securities. This fund is one of the best Japanese ETFs to invest in.
This allocation could also consist of investments made in a roundabout way by way of the Franklin FTSE Japan ETF, which acts as the underlying fund.
The FTSE Japan Capped Hedged Index was designed expressly for the purpose of evaluating the overall performance of Japanese equities with large and mid-capitalizations.
It is derived from the FTSE Japan Hedged to USD Index, which was itself developed specifically for this purpose.
The FLJP fund is committed to preserving a collection of more than 500 Japanese shares that fall into the large- and mid-sized company categories.
This portfolio is very diverse, with substantial coverage across a wide variety of sectors. The performance of the product should strive to be as similar as possible to that of the FTSE Japan Capped Index, which is the product’s primary benchmark.
The majority of the holdings in the portfolio are concentrated in the consumer discretionary, industrial, and information technology sectors.
The fund’s holdings include notable companies like Toyota Motor Corp. (7203:TKS), Sony Group, and Keyence Corp. (6861:TKS), which are all included in the fund’s portfolio
Franklin FTSE Japan ETF
Achieving investment outcomes that closely coincide with the performance of the FTSE Japan RIC Capped Index, which is also known as the FTSE Japan Capped Index, is the goal of this investment.
This aim is intended to be accomplished before taking into consideration any fees or other associated costs. This fund is one of the best Japanese ETFs to invest in.
The fund invests at least 80 percent of its total assets in the securities that make up the FTSE Japan Capped Index and the depositary receipts that stand in for these securities whenever market circumstances are usual.
The FTSE Japan Capped Index is an evaluation tool that was designed to assess the overall performance of large and mid-cap companies in Japan. It is derived from the FTSE Japan Index and was established expressly for this purpose.
Xtrackers MSCI Japan Hedged Equity ETF
This investment seeks to provide outcomes that are consistent with the overall performance of the MSCI Japan US Dollar Hedged Index as closely as possible. This fund is one of the best Japanese ETFs to invest in.
The fund uses a passive investing strategy, also known as indexing, with the goal of generating investment returns that are consistent with the performance of the index that serves as the fund’s primary benchmark.
This index was developed with the express purpose of tracking the performance of the Japanese equities market while reducing exposure to changes in the value of the United States dollar compared to that of the Japanese yen.
A minimum of 80 percent of the fund’s total assets will be invested in the component securities of the underlying index. These component securities may comprise depositary receipts.
iShares MSCI Japan Value ETF
The purpose of this investment is to achieve a level of performance that is comparable to that of the MSCI Japan Value Index (USD). This fund is one of the best Japanese ETFs to invest in.
The index is a freely floating, weighted index that is comprised of major and mid-capitalization Japanese equity companies. These stocks exhibit qualities that are typical of the value investing strategy as a whole.
The investment strategy of the fund principally entails allocating a minimum of 80% of its assets towards the component securities of the underlying index, in addition to investments that closely match the economic characteristics of these component securities.
In addition, the fund may also invest in investments that closely resemble the economic features of the underlying index.
Additionally, the fund may invest up to twenty percent of its total assets in certain futures, options, and swap contracts, in addition to cash and cash equivalents. This allocation is permitted under certain circumstances.
JPMorgan BetaBuilders Japan ETF
Achieving investment outcomes that are closely aligned with the performance of the Morningstar® Japan Target Market Exposure IndexSM is the goal of this investment.
This aim is intended to be accomplished before taking into consideration any fees or other associated costs. This fund is one of the best Japanese ETFs to invest in.
A minimum of eighty percent of the fund’s total assets are required to be invested in securities that are included in the underlying index in order to follow the investment strategy of the fund.
The fundamental index is a market capitalization-weighted index that also takes into account free-float adjustments.
It is mostly made up of shares of companies that are listed and traded on either the Tokyo Stock Exchange or the Nagoya Stock Exchange.
The fund reserves the right to invest up to twenty percent of its total assets in exchange-traded futures and forward foreign currency contracts. This allocation possibility exists.
By allocating resources in this manner, the goal is to obtain performance that corresponds to the underlying index.
iShares MSCI Japan Small-Cap ETF
The purpose of this investment is to achieve a level of performance that is comparable to that of the MSCI Japan Small Cap Index. This fund is one of the best Japanese ETFs to invest in.
This index provides a quantitative representation of the performance of equity securities belonging to Japan’s small-capitalization enterprises.
It is estimated that 14% of the free-float-adjusted market capitalization throughout the whole of Japan’s equity universe is represented by it.
The fund normally allots at least 80 percent of its assets toward the component securities of its designated index and investments that closely match the economic characteristics of said component securities.
In addition, the fund may also invest in other securities that closely resemble the economic characteristics of said component securities.
In addition, it is possible for it to invest up to twenty percent of its total assets in certain futures, options, and swap contracts, cash and cash equivalents, as well as securities that are not included in the index.
WisdomTree Japan Hedged Equity ETF
This investment seeks to mirror the price and yield performance of the WisdomTree Japan Hedged Equity Index, minus any fees and costs that may be incurred as a result of the transaction. This fund is one of the best Japanese ETFs to invest in.
If circumstances are normal, at least 95% of the fund’s total assets will be invested in component securities of the index and investments that closely mirror the economic features of these component securities.
Collateral earned via securities lending will not count toward this minimum. It is the objective of the index to provide exposure to Japanese stock markets while at the same time reducing the effect of variations in the value of the Japanese yen relative to the United States dollar. The fund does not use a diverse approach to its investing strategy.
iShares MSCI Japan ETF
This investment is being made with the intention of achieving a return that is comparable to that of the MSCI Japan Index. This fund is one of the best Japanese ETFs to invest in.
The fund will normally deploy a minimum of 80% of its assets towards the component securities of its underlying index and investments that closely resemble the economic characteristics of said component securities.
In addition, the fund may also devote a portion of its assets to investments that closely match the economic characteristics of said component securities.
The fundamental objective of the underlying index is to analyze and evaluate the overall performance of the large-capitalization and mid-capitalization divisions of the Japanese equity market.
The EWJ, which is an abbreviation for the iShares MSCI Japan ETF, has the distinction of being the exchange-traded fund (ETF) that has been operating the longest in Japan.
It also has the biggest quantity of assets under its management, which makes it a prominent participant in the market. Moreover, it has the highest number of assets under its administration.
In addition, the EWJ has remarkable liquidity, which places it head and shoulders above its rivals by a significant margin.
The fund tracks the performance of the MSCI Japan Index, which acts as its benchmark, and keeps a selection of around 240 Japanese companies that have a large market capitalization.
Industrial stocks make up the vast bulk of the portfolio, with consumer discretionary and information technology companies coming in a close second and third.
A number of well-known companies, including Toyota, Sony Group, and Keyence, are held inside the portfolio of the fund.
First Trust Japan AlphaDEX® ETF
Before taking into consideration the costs and expenditures that are connected with the fund, the goal of this investment is to produce returns that are comparable to the price and yield of the NASDAQ AlphaDEX® Japan Index. This fund is one of the best Japanese ETFs to invest in.
This will be accomplished by matching the index’s price and yield. A minimum of 90 percent of the fund’s net assets, including investment borrowings, will normally be invested in the securities that make up the index.
The goal of the index is to determine, relative to traditional indices, whether companies in the NASDAQ Japan Index (also known as the “base index”) have the potential to create positive alpha, which stands for risk-adjusted returns.
This is accomplished by comparing the stocks to other indices that are widely used. The AlphaDEX® technique serves as the foundation for this selection process.
iShares Currency Hedged MSCI Japan ETF
The purpose of this investment is to achieve a return that is comparable to that of the MSCI Japan 100% Hedged to USD Index. This fund is one of the best Japanese ETFs to invest in.
The fund will normally allocate at least 80 percent of its assets towards the component securities and other instruments of its underlying index, as well as investments that closely match the economic characteristics of the component securities of the underlying index.
In addition, the fund may also invest in investments that closely mimic the economic characteristics of the component securities of the underlying index.
In addition to evaluating the performance of the large- and mid-capitalization divisions of the Japanese equities market, the index’s primary objective is to mitigate the currency risk that is associated with the securities that are included in the underlying index.
To achieve this, it is possible to hedge the currency exposure on a monthly basis against the value of the US dollar.
WisdomTree Japan Hedged SmallCap Eq ETF
This investment seeks to achieve a return that is equivalent to that of the WisdomTree Japan Hedged SmallCap Equity Index in terms of both price and yield, net of any fees and other associated costs. This fund is one of the best Japanese ETFs to invest in.
Generally speaking, the fund will put at least 80 percent of its total assets into the securities that make up the index as well as investments that have economic properties that are strikingly similar to those of the index’s component securities.
The index is a dividend-weighted index that has been specially developed to give exposure to Japanese equity markets while at the same time reducing the effect of variations in the value of the Japanese yen relative to the value of the United States dollar.
The index was created with the intention of offering exposure to Japanese equity markets. The fund does not use a diverse approach to its investing strategy.
iShares JPX-Nikkei 400 ETF
This investment seeks to achieve a return that is comparable to that of the JPX-Nikkei Index 400, which tracks the performance of Japanese stocks and shares of ownership. This fund is one of the best Japanese ETFs to invest in.
The fund normally allots at least 80 percent of its assets toward the component securities of its underlying index and investments that closely match the economic characteristics of said component securities.
In addition, the fund may also invest in other securities that closely mimic the economic characteristics of said component securities.
The underlying index will include firms with different levels of market capitalization, such as big, mid-, and small-cap businesses, respectively. The underlying index is comprised of assets that all have the same currency, which is the Japanese yen (JPY).
Investors have the chance to get exposure to Japanese firms with a considerable market capitalization as well as those with medium market capitalization via the JPXN exchange-traded fund (ETF).
These stocks are selected with great care based on the companies’ reputed dedication to doing actions that are profitable to shareholders, such as increasing their return on equity and increasing their profits.
The JPX-Nikkei Index 400 is the standard index that is used to measure the performance of the product. Because the portfolio of the JPXN fund is made up of about 400 different companies, the risk of dependence on any one business for more than 2% of the fund’s total assets is significantly reduced.
The portfolio has a significant number of holdings in the producer manufacturing, finance, and health technology sectors respectively.
A number of well-known corporations, including Mitsubishi Corp. (8058:TKS), Mitsui & Co. (8031:TKS), and Sumitomo Mitsui Financial Group, are included in the fund’s investment portfolio.
Goldman Sachs ActiveBeta® Japan Eq ETF
To achieve investment results that closely correspond, before accounting for fees and costs, with the performance of the Goldman Sachs ActiveBeta® Japan Equity Index (referred to as the “index”), the purpose of this investment is to obtain investment outcomes that closely align with the performance of the index.
The index’s primary objective is to provide investors with exposure to equity securities that are issued by corporations based in Japan. This fund is one of the best Japanese ETFs to invest in.
A minimum of eighty percent of the fund’s assets, excluding any collateral received via securities lending, will be invested in securities that are included in the fund’s underlying index in order for the fund to meet its investment goal.
Additionally, it may make investments in depositary receipts that reflect securities that are included in the underlying index, in addition to investing in the underlying equities that are connected with those depositary receipts.
Final Thoughts
The majority of the time, Japanese ETFs invest in the equity of American companies rather than the debt of Japanese enterprises or the bonds of the Japanese government.
It is of the utmost importance to recognize that the performance of Japanese ETFs, when assessed in United States dollars, demonstrates an imperfect correlation with the performance of the index to which they are correlated.
The most significant contributor to this disparity is the unpredictability of currency exchange rates and conversion rates.
According to the MSCI Japan Index, it can be seen that Japanese exchange-traded funds (ETFs) have had a propensity to display worse performance when compared to equities in the United States.
When compared to the return that the Russell 1000 has earned over the past year, which is 19.5%, the return that Japanese ETFs have generated over the past year is around 13.9%.
The iShares JPX-Nikkei 400 ETF has the highest level of performance among the three possibilities that are being taken into consideration.
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