iShares ETFs cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of this fund for your investment objective, please visit our product webpage.
Find out more about iShares MSCI Japan ETF (IJP): https://www.blackrock.com/au/products/273434/
This product is likely to be appropriate for a consumer:
• who is seeking capital growth
• using the product for a core component of their portfolio or less
• with a minimum investment timeframe of 5 years, and
• with a medium to high risk/return profile
On the fast track
As investors search for growth opportunities outside the US, Japan stands out due to a positive economy and supportive domestic factors. We explore how Japan's economy can thrive despite tariffs and the best ways to invest in Japan today.
US and global equities have rebounded in May after April's sharp tariff-driven decline, but remain volatile as new trade policies are discussed. In this uncertain environment, Japan presents opportunities driven by its strong domestic economy outside of the day-to-day tariff headlines.
Through the market rollercoaster of the first half of 2025, Japan’s equity market performance has been relatively steady, with the MSCI Japan Index returning 7.7% in the six months to May versus 0.56% for the S&P 500 Index and 3.59% for the S&P Global 100 Index.1
This may be why we’ve seen local investors jump on board Japanese equities, with the iShares MSCI Japan ETF (IJP) taking in more than $112 million year to date2 – placing it among our top 10 most popular ETFs of 2025 on an inflow basis.
Inflows to the iShares MSCI Japan ETF (IJP)
Source: BlackRock data as of 23 May 2025
As seen in the chart above, with $114 million flowing into IJP for the entire 2024 calendar year, inflows are already at 98% of last year’s figures, showing that Japan has jumped ahead in Aussie investors’ estimations this year amid a more difficult environment for returns.
So what are the factors driving solid growth and interest in Japan, despite the current market turbulence?
An economy in recovery
After years of lackluster economic growth, deflation and negative interest rates, Japan appears to have turned a structural corner. Consistent wage and price growth, driven by a tight labour market as Japan’s population ages, are fueling the strongest increase in Japan’s nominal GDP since the 1980s (see chart below).
Japan’s nominal GPD since the 1980s
Source: Japan Cabinet Office and Morgan Stanley Research. Note e = research estimates
According to Japan’s Ministry of Labour, Health and Welfare, scheduled cash earnings for university graduates grew 5% in 2024 compared to just 1% in 20143, highlighting the degree to which in-demand younger workers are now helping to drive wage rises in the Japanese economy.
At the same time, corporate reforms are also delivering more of the profits from Japan’s economic recovery to shareholders. Enhanced listing criteria on the Tokyo Stock Exchange since 2023 has encouraged companies to return excess cash to shareholders via buybacks, which are currently at record levels year to date.4 We’ve also seen less profitable companies de-list while others have moved to sell off underperforming business lines, as the reforms drive a focus on earnings growth and capital efficiency.
Economic momentum is also being driven by cash-rich domestic consumers and investors. Japanese households have around US $14 trillion in assets, with about 50% held in cash. This is a large amount compared to markets like the US or the EU, where more assets are held in stocks or pension plans (see chart below).
Composition of household financial assets
Source: Financial Times/Japan Securities Dealer Association, as of 31 December 2024
Besides driving more spending in the economy, these large cash reserves might also boost investments in stock markets in the coming years, thanks to Japan's Nippon Individual Savings Account (NISA) program. Launched in early 2024, the scheme offers tax incentives for investors to switch their cash deposits into equities or managed funds, and has led to a doubling of year-on-year net flows into Japanese managed funds in calendar year 2024.5
While the impact of US trade policy – particularly the potential 25% tariff on automotives – is still unclear, we see that markets have already factored in a significant proportion of the negative affects due to analyst and auto company earnings revisions. We believe there is room for sentiment to turn more optimistic on this issue as trade agreements are finalised, and Japan and the US work towards a potential middle ground in terms of trade barrier removal.
How to tap into Japan’s growth story
Japanese equities can be a useful portfolio diversifier, allowing investors to tap into the long-term economic recovery in Japan as well as taking advantage of currency fluctuations.
With a more diversified line-up of stocks – for example, the largest sector weighting in the MSCI Japan Index is 24%, compared to 34% for the S&P/ASX 200 Index and 32% for the S&P 500 Index – investors may be able to benefit from reduced concentration risk by taking passive index exposure to Japan.
It's also important for investors to consider currency exposure given the potential future direction of the Japanese yen. With Japanese interest rates expected to rise later in the year as the Bank of Japan looks to tackle rising inflation, we could see a moderate rally in the yen – a currency which also tends to appreciate during periods of market stress.6 For this reason, unhedged Japanese equity exposures may be preferable for investors at the current time.
For those seeking to track potential long-term growth in the Japanese equity market, the iShares MSCI Japan ETF (IJP) provides access to around 85% of total stock market capitalization in Japan. IJP can serve as a core portfolio building block in investors’ global equity holdings, while also providing potential currency appreciation benefits as an unhedged exposure.
Ultimately, once tariff-related volatility settles, we see wage and inflation growth, combined with ample domestic cash savings, continuing to provide a domestic tailwind for Japanese equities - with opportunities at a broad-based level in Japan as winners emerge from the ongoing trade war.
