Time for Japan ETFs?

Japan’s Nikkei index has been hovering around an all-time high. The index crossed the 51,000-mark on Oct. 30, 2025, and has added over 14% in the past one month.  The Bank of Japan stayed put on Oct. 30 and held the policy rate steady at 0.5% in its first meeting under Prime Minister Sanae Takaichi's term, that started earlier this month.

We expect Japan’s stocks to rally ahead due to a host of factors.

BoJ Not in Hurry to Tighten Policy?

The Bank of Japan is in no rush to tighten monetary policy, even as inflation is expected to remain at 2.7% for fiscal 2025, 1.8% for fiscal 2026 and 2.0% for fiscal 2027, as quoted on Nippon.com.

Though two board members pushed for an immediate rate hike of 25 bps, the majority preferred to wait and assess conditions through the December and January meetings (per an article published on AA.com). Easier monetary policy is seen as favoring growth stocks.

The BOJ's decision was made amid weakening export environment. Japan's exports dropped for four successive months before increasing in September (per the AA.com article).

"Takaichi Trade"

Takaichi is viewed as a supporter of "Abenomics," the former Prime Minister Shinzo Abe's economic policy that supported structural reforms, fiscal spending, and loose monetary policy (per the above-said AA.com article).

Takaichi is in favor of enhancing investment in strategic business sectors, including artificial intelligence, semiconductors, nuclear fusion, and defense, per Reuters, as quoted on Yahoo Finance.

Experts predict that Takaichi's policies will devalue the yen. If the BoJ doesn’t hike rates in the near term, the yen could fall further. A weaker yen would boost the profitability of export-oriented Japanese sectors upon repatriation of income.  Invesco CurrencyShares Japanese Yen Trust FXY lost 3.2% over the past one month.

ETFs to Gain

Against the aforementioned backdrop, below we highlight a few exchange-traded funds (ETFs) that could be likely winners.

Currency-Hedged Large-Cap ETFs

The rally in Japanese equities will likely boost demand for Japan-focused large-cap ETFs. WisdomTree Japan Hedged Equity Fund DXJ, Xtrackers MSCI Japan Hedged Equity ETF DBJP and iShares Currency Hedged MSCI Japan ETF HEWJ are some of the ETFs that should gain ahead. DXT ETF gained 1.2% on Oct. 31, 2025.

Inverse Yen

ProShares UltraShort Yen YCS should gain on a falling yen. Note that hopes of easier monetary policy have weighed on the yen ETF Invesco CurrencyShares Japanese Yen Trust FXY. The YCS ETF added about 1.6% on Oct. 31, 2025.

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

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Source Zacks-com