Japan in 2026: Is the Takaichi trade the new Trump trade?

Tamara Haban-Beer Stats | BlackRock

Amid worrying headlines around tariff uncertainty and the tech sector approaching bubble territory, we saw investors cool on US equities last year and reignite their interest in Asia. 

Japan stood out as a particularly positive investment story, as the surprise election of Sanae Takaichi as prime minister ushered in a new era of fiscal support and Japan’s phased shareholder reforms continued to take shape.

These trends fuelled Japanese equities to record highs last year, with the Topix 100 Index breaching 3000 points and the Nikkei 225 rising above 50,000 late in 2025.¹

They also drove buoyant inflows to Japanese equities among Australian investors, with the iShares MSCI Japan ETF (IJP) gathering over $360 million in net flows last year – more than triple the fund’s 2024 flow numbers.²

Inflows to the MSCI Japan ETF (IJP), 2024 vs 2025

Source: BlackRock data as of 15 December 2025. Note 2025 figures are from 1 January – 15 December 2025

Looking ahead in 2026, we expect continuing investor interest in Japan and other Asian equity markets. A recent BlackRock client survey indicated just under 50% of respondents intended to increase their exposure to share markets in the Asia Pacific region in the next three months.³

So as investors search for new growth opportunities beyond the US, do the fundamentals in Japan stack up for another strong year of returns?

Can the Takaichi trade last?

Much like the so-called ‘Trump trade’ of late 2024, the ‘Takaichi trade’ fuelled investor optimism on Japan last year due to the incoming prime minister’s dovish monetary policy leanings and ambitions to support economic growth through a program of tax cuts and subsidies. 

While Takaichi has so far had to negotiate through a coalition with the Japan Innovation Party and other independents, the prime minister is expected to call a snap election in February to take advantage of her strong approval rate and increase her party’s majority. 

This would give the prime minister more room to push ahead with her growth-oriented agenda, supporting domestically-oriented Japanese equities and aligning with BlackRock’s general overweight view on Japan this year.

One of the main risks around Takaichi’s policy stance that has concerned markets is the impact on inflation, with November 2025 figures indicating a 3% increase in consumer prices, ahead of the Bank of Japan’s 2% target rate.⁴

Although CPI has moderated from close to 4% earlier in 2025, the Bank of Japan has now resumed hiking interest rates, which it largely held off doing in 2025 as uncertainties around global trade played out.

Looking ahead, we anticipate the central bank will proceed cautiously and rely on data, with one more rate increase expected in Q3. BoJ Governor Ueda has stated inflation must be sustained by domestic wage growth to justify further hikes.⁵

Although rising goods prices have hurt real wages, Japanese unions plan to push for significant pay raises this year, with negotiation outcomes typically announced in March.⁶

The Tokyo Stock Exchange reforms that have driven increased investor interest in Japan over the last few years are also set to move into a new phase in 2026, with companies being delisted that have not made sufficient improvements to earnings growth and capital efficiency. 

The Japanese Financial Services Agency will also revise its corporate governance code this year, with a focus on effective capital allocation and better use of cash for investment.

Modernisation has driven significant reform to Japan’s equity market in recent years, with shareholder distributions more than tripling over the past decade.⁷

While Japanese share valuations are currently at the higher end compared to history, the reforms may ultimately see the local equity market – which has been chronically undervalued compared to developed market peers – re-rated higher on a long-term basis.

Accessing growth in Japan

As well as offering a compelling tactical investment case in 2026, Japanese equities can also provide useful long-term diversification opportunities for Australian portfolios.

For those holding broad global equities exposure through an index such as MSCI World, Japanese equities are under-represented, making up less than 6% of the index weighting. 

As such, investors may wish to use a single-country ETF like IJP to dial up their exposure to Japanese shares if valuations are looking appealing.

The MSCI Japan Index tracked by IJP also provides access to sectors that may be under-represented in local investor portfolios. 

With a 25% weighting to industrials and 17% weighting to consumer discretionary, the index may offer complementary exposure to the Australian share market which is dominated by financials and materials, as well as tech-heavy US equities.⁸

As an unhedged exposure, returns in IJP can fluctuate with movements in the Japanese yen. As the Bank of Japan potentially resumes its rate hike path in 2026, this may work to investors’ benefit versus currency hedged ETFs, as we may see the yen appreciate when interest rates rise.

Overall, with a strong program of fiscal support providing tailwinds to the domestic economy, and reforms having an ongoing positive impact on the equity market, we see Japan continuing to attract interest as investors search for new growth opportunities in Asia.