Key Takeaways
- Japanese stock markets have hit record highs in September.
- US-Japan trade deal has helped sentiment, especially for Japanese exporters.
- Four ETFs with Gold Medalist Ratings stand out among 54 exchange-traded funds.
Exchange-traded funds can offer a simple and inexpensive way to gain exposure to Japanese stocks, and some of these are highly rated by Morningstar’s fund analysts. This comes at a time when Japan’s benchmark Nikkei 225 index hit records in late September, led by gains in the real estate and technology sectors.
On Sept. 4, US President Donald Trump signed an executive order that cuts tariffs on Japanese car imports from 27.5% to 15%, easing uncertainty for motor industry stocks like Toyota, Honda and Nissan. In return, Tokyo agreed to invest USD 550 billion in US projects, and gradually open its economy to American goods, as reported by the White House.
“The deal is generally positive to our outlook for Japanese stocks as it takes our bear-case scenario for average 32% tariffs off the table and improves the risk outlook for the broad market,” says Lorraine Tan, director of Asian equity research at Morningstar.
“With the reciprocal tariff rate at 15%, our base-case view is that tariffs should have a limited direct impact for most industries in Japan. The key risk remains the indirect impact of slower global demand, given ongoing tariff uncertainty.”
Japan stocks have outperformed global equity markets since the start of the year. This marks a reversal after a prolonged period of underperformance relative to international developed markets, when in particular US equities—boosted by an AI-driven tech surge—posted impressive gains.
In September the Bank of Japan decided to keep short-term interest rates at 0.50%. Christophe Braun, equity investment director at Capital Group, says this “emphasizes its cautious stance amid slowing inflation and global uncertainty, prioritizing stability over premature tightening.
“Unlike the US and Europe, where central banks are leaning toward rate cuts, Japan’s macroeconomic conditions call for a more measured approach. We expect the yen to strengthen gradually as interest rate differentials narrow, which will bolster Japan’s purchasing power and support domestic demand,” he says.
Screening For the Best Japan Large-Cap Blend Equity ETFs
To help investors find ETFs focused on Japan large-cap stocks, we’ve screened 54 ETFs in Morningstar’s Japan large-cap blend equity category for those with Gold Medalist Ratings.
A Gold Medalist Rating means our analysts believe a fund has the greatest chance of outperforming its category over the long term.
A number of different providers make the list:
- iShares Core MSCI Japan IMI ETF USD Acc EUNN
- Vanguard FTSE Japan ETF $ VJPN
- Franklin FTSE Japan JPY FLXJ
- Amundi IS Japan Topix ETF-C EUR TPXE
We screened for ETFs with Gold Medalist Ratings that are covered directly by Morningstar analysts. None of the four ETFs that made it through the screen is actively managed. Two of them track the FTSE Japan Index, while the others follow the MSCI Japan IMI Index and the TOPIX index, which covers a broader range of stocks than the Nikkei 225.
The Best Japan Large-Cap Blend Equity ETFs
iShares Core MSCI Japan IMI ETF USD Acc EUNN
The £5.1 billion iShares Core MSCI Japan IMI UCITS ETF rose 17.32% over the past year. The fund performed roughly in line with its benchmark, the Morningstar Japan Target Market Exposure Index. Year to date, the iShares fund rose 12.42%.
Vanguard FTSE Japan ETF $ VJPN
The £2.8 billion Vanguard FTSE Japan UCITS ETF rose 17.07% over the past year. The fund performed roughly in line with its benchmark, the Morningstar Japan Target Market Exposure Index. Year to date, the Vanguard fund rose 12.01%.
Franklin FTSE Japan JPY FLXJ
Over the past year, the passively managed Franklin FTSE Japan UCITS ETF rose 17.02%, while the average Japan large-cap blend equity fund gained 17.33%. The fund placed in the 50.0th percentile for performance and performed roughly in line with its benchmark, the Morningstar Japan Target Market Exposure Index. The £6.9 million fund has climbed 12.0% year to date, performing roughly in line with the average fund in its category, which rose 12.62%.
Amundi IS Japan Topix ETF-C EUR TPXE
The £696.9 million Amundi Index Solutions - Amundi Japan Topix rose 17.49% over the past year. The gain on the passively managed fund was roughly in line with the 17.33% gain on the average fund in the Japan large-cap blend equity category, leaving it in the 36.0th percentile for performance. The fund performed roughly in line with its benchmark, the Morningstar Japan Target Market Exposure Index. Year to date, the Amundi fund rose 12.45%, while the average fund in its category rose 12.62%.
