Japan ETFs Soar on "Takaichi Trade": Top-Performers in Focus

Japanese equities surged to record levels after Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) secured a landslide victory in the national election held on Feb. 8, 2026. The Nikkei 225 crossed the 57,000-mark for the first time on Feb. 10, 2026.

iShares MSCI Japan ETF EWJ has gained 9.2% over the past month and 14.5% so far this year (as of Feb. 10, 2026), clearly outstripping 1.3% year-to-date gains in State Street SPDR S&P 500 ETF Trust SPY.

Landslide Election Victory Strengthens Government Control

The LDP won 316 out of 465 seats, marking the first time since 1947 that a single party has achieved a two-thirds majority in Japan’s lower house, as mentioned on BBC. Coalition partner Japan Innovation Party added 36 seats, bringing the alliance’s combined total to 352 seats. The win allows Takaichi to push forward pro-business reforms with limited resistance.

Policy Agenda Focused on Growth and Stimulus

Following the victory, Takaichi reiterated plans for a “responsible yet aggressive” fiscal strategy, including stimulus measures, tax adjustments and deregulation aimed at reviving economic growth, per the same BBC article.

Chris Scicluna, head of research at Daiwa Capital Markets Europe, told BBC that Takaichi’s pledge to end austerity and intentions for increased investment in strategic sectors such as defense and artificial intelligence (AI) could further support Japan’s ongoing equity market rally.

Raised Economic Growth Forecasts Ahead of Snap Election

In late January, the Bank of Japan upgraded its real economic growth forecast for the fiscal year 2025 to 0.9% from 0.7% in October 2025, and raised its GDP expansion outlook for the 2026 fiscal year to 1% from 0.7%.

Inflation will likely be in upward trajectory with the fiscal 2025 outlook being raised from 2.8% to 3%. Fiscal 2026 inflation is likely to be 2.2% compared with the 2% forecast made in October.

The central bank kept the benchmark interest rate steady in a split 8-1 decision on Jan. 23, after hiking it to the highest level in 30 years in December, as quoted on CNBC.

Can the Nikkei Rally Last?

The rising trend of inflation may deter the central bank from going for policy easing in the near term. Rahul Ghosh of T.Rowe Price noted that there is ‘more bark than actual bite’ when it comes to Takaichi’s influence on the Bank of Japan’s ongoing rate hiking cycle, as quoted on CNBC.

Moreover, the likelihood of more government spending and the suspension of sales tax on food has unnerved investors already concerned about Japan's debt burden, the largest in the developed world (as quoted on US News).

Uncertainty over funding risks could trigger a bond market sell-off and a rise in government bond yields. This, in turn, would increase the cost of servicing public debt that is roughly twice the size of Japan's economy (per Reuters). Deteriorating fiscal sustainability could also cause yen weakness and lead to higher import costs.

So, it all depends on how the prime minister deals with the entire scenario and to what extent a fiscal boost will be applied. It is also needed to be seen if any kind of yen intervention will be made. Till then, a short-term boost to equities should be seen.

ETF Winners

Against this backdrop, we highlight a few winning Japan ETFs. All these ETFs are at a 52-week high.

WisdomTree Japan Opportunities Fund OPPJ – Up 8.5% over the past five days

First Trust Japan AlphaDEX Fund FJP – Up 6.7% over the past five days.

iShares JPX-Nikkei 400 ETF JPXN – Up 6.4%

Japan Smallcap iShares MSCI ETF SCJ – Up 6.3% 

WisdomTree Japan SmallCap Dividend Fund DFJ – Up 6.1%

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

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