Japan’s stock market just did something it hasn’t done in decades — and most American investors weren’t watching.
The Nikkei 225 blew past 57,000 this week, hitting fresh all-time highs. It’s up 15% year-to-date. For context, the S&P 500 is up about 4% over the same stretch. Japan is lapping the U.S., and the catalyst isn’t some mysterious macro shift — it’s a political earthquake.
Prime Minister Sanae Takaichi won a landslide election on February 8, and investors immediately started pricing in aggressive government spending, potential tax cuts, and pro-growth corporate policies. The so-called “Takaichi trade” has been relentless, pushing the Nikkei, the TOPIX, and Japanese ETFs higher almost every session since.
But here’s the part that matters for your portfolio: politics is just one tailwind. A weakening yen — down to its lowest level in two weeks against the dollar right after the election — is turbocharging exporters like Toyota (TM) and Sony (SONY). When the yen weakens, their overseas profits translate into more yen back home. Most forecasts expect the yen to slide further this year as the Bank of Japan raises rates slower than the Fed.
Then there’s the AI angle. Companies like Fujitsu, Rakuten, and Panasonic are pouring capital into AI-powered business solutions — from logistics optimization to smart city infrastructure. Japan isn’t leading the AI race, but it’s quietly building the picks-and-shovels layer that makes AI work in the real economy.
The simplest way most U.S. investors play this rally is through broad Japan ETFs — think WisdomTree Japan Hedged Equity Fund (DXJ) or iShares MSCI Japan ETF (EWJ). The currency-hedged version has been the smarter trade so far, given the yen’s trajectory.
The bigger question is whether this rally has legs. A 15% move in six weeks is aggressive. But with structural reforms, BOJ cooperation, and AI capex building momentum, this isn’t just a sugar rush. Japan’s market is repricing for a fundamentally different growth outlook — and the institutions are just starting to rotate in.