Time for Japan Equities ETFs?

Japan’s benchmark Nikkei 225 hit the 62,000-mark for the first time as Asia-Pacific markets rallied despite tensions in the Middle East.  Let’s find out what’s driving the rally.

Improving GDP Data

Japan’s GDP grew 0.3% sequentially in Q4 of 2025, higher than the flash estimate of 0.1% and in line with market expectations, per Trading Economics. The reading followed a 0.7% contraction in Q3, thanks to upward revisions to private consumption, business investment, and government spending.

Japan’s Inflation Under Control

Japan’s annual inflation rose to 1.5% in March 2026 from February’s near four-year low of 1.3%, with transport costs posting the fastest increase in four months (2.1% vs 0.5% in February), due to the Middle East tensions, per Trading Economics.

However, as of April 2026, the Bank of Japan (BOJ) raised its core inflation forecast to 2.8% for fiscal year 2026, up from previous projections. Due to energy costs and wage pass-throughs, the central bank projects underlying inflation will remain above its 2% target, hovering around 2.0-2.5% in fiscal 2027 and 2% in fiscal 2028. Note thatif the Iran war eases soon, Japanese inflation may cool down fast. 

Will Fiscal Policy Measures Boost Inflation?

Prime Minister Sanae Takaichi is considering suspending an 8% food tax for two years to ease the burden of rising living costs. However, BOJ Governor Kazuo Ueda suggested that such measures may have only a limited impact on long-term inflation expectations, according to Reuters, as mentioned in CNBC.

No BoJ Rate Hike in the Near Term?

Signs of contained inflation may lead the BoJ to not hike rates in the near term. However, many Bank of Japan board members witnessed the need to raise interest rates if the Iran war-driven energy shock is protracted and gives rise to concerns over second-round effects on ‌broader inflation, minutes of their March meeting revealed, as quoted on Reuters. However, with the moderate growth scenario and mixed inflation signals, the BOJ is likely to move cautiously on the future rate hike front.

Tech Rally

Shares in Japanese tech-focused investment giant SoftBank Group soared 16.5% Thursday, as quoted on CNBC. The global artificial intelligence-led tech rally should boost Japanese tech stocks.

Bottom Line

The possibilities of a less-hawkish or accommodative BoJ and an expansionary fiscal policy are positives for Japanese stocks. Against this backdrop, below we highlight a few Japan ETFs like iShares MSCI Japan ETF EWJ, JPMorgan BetaBuilders Japan ETF BBJP, and WisdomTree Japan Hedged Equity Fund DXJ for expected gains.

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This article originally published on Zacks Investment Research (zacks.com).

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