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

Summary

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.Get iShares MSCI Japan ETF alerts:Sign Up 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. J...