Japan ETFs Surges to New Highs Amid US-Japan Trade Deal

Japanese-focused ETFs, including the iShares MSCI Japan ETF (EWJ), JPMorgan BetaBuilders Japan ETF (BBJP) and WisdomTree Japan Hedged Equity Fund (DXJ), surged 4.5% on Wednesday, hitting fresh highs for the year after the US and Japan struck a high-profile trade agreement. The deal avoids steep tariffs on Japanese exports, including autos, which was a major concern for investors. Toyota Motor Corp., the top holding in EWJ and BBJP, surged 13%. Currency exposure accounts for the performance divergence between the funds.

Japanese-focused ETFs, including the iShares MSCI Japan ETF (EWJ), JPMorgan BetaBuilders Japan ETF (BBJP), and WisdomTree Japan Hedged Equity Fund (DXJ), surged 4.5% on Wednesday, hitting fresh highs for the year after the U.S. and Japan struck a high-profile trade agreement [1]. The deal, which was announced by President Donald Trump on Truth Social, avoids steep tariffs on Japanese exports, including autos, which was a major concern for investors. Toyota Motor Corp., the top holding in EWJ and BBJP, surged more than 13% on Wednesday.

The agreement, which includes a 15% reciprocal tariff on Japanese goods and a $550 billion investment in the U.S., has significantly boosted investor confidence. The U.S. accounts for roughly a fifth of Japan’s exports, with vehicles making up a sizable share. A 25% tariff on autos would have been a major blow to Japan’s economy and its auto sector in particular. Instead, the 15% tariff rate is a more manageable figure for Japanese automakers [2].

Currency exposure accounts for the performance divergence between the funds. While EWJ and BBJP are unhedged, DXJ hedges the Japanese yen, which has rallied against the U.S. dollar in 2025. This has weighed on DXJ relative to the other two funds. However, last year, when the yen tumbled, DXJ soared nearly 30% compared to 7% gains for the other two funds [1].

The U.S.-Japan trade deal also has implications for other sectors. For instance, multinational manufacturing, consumer discretionary, and import-dependent tech firms are expected to benefit from the de-escalation of trade tensions and the reconfiguration of global value chains [2]. Companies like Apple and NVIDIA are likely to see gains due to their strategic positioning in these sectors.

Investors should remain vigilant, as a failure to reach a U.S.-EU deal could reignite volatility, particularly for sectors like automotive and industrial goods. Diversification and hedging strategies are prudent safeguards in this environment [2].

In conclusion, the U.S.-Japan trade deal has created a positive environment for Japanese-focused ETFs and related sectors. Companies and investors should strategically position themselves to capitalize on this opportunity while managing geopolitical risks.

References:
[1] https://www.etf.com/sections/news/japan-etfs-hit-record-highs-after-trump-announces-trade-deal
[2] https://www.ainvest.com/news/global-trade-de-escalation-impact-equities-2507/