Japan, Emerging Markets ETFs Attract Fresh Inflows Amid Trump's Tariff Surprise

Investor capital is circulating globally, with Japan and emerging markets ETFs gaining traction as trade policy uncertainty makes a comeback.

About $1 billion was injected into the iShares MSCI Japan ETF (NYSE:EWJ) last week, while the Vanguard FTSE Emerging Markets ETF (NYSE:VWO) attracted around $949 million. These two separate inflows indicate that investors are diversifying their portfolios beyond U.S. stocks during a period when tariff agreements related to President Donald Trump's policy agenda are again in the spotlight.

The U.S. Supreme Court decided on Friday to strike down Trump’s tariffs under the International Emergency Economic Powers Act (IEEPA). Following this, Trump declared a temporary 15% duty on imports from all countries.

Japan's government has indicated that it will carefully examine the effects of Trump's recently announced tariffs, which could impose steeper levies on certain goods than those agreed to in the trade agreement reached between the two countries last year. The country is said to be urging the U.S. to honor existing agreements.

Notably, these new allocations occurred despite EWJ falling approximately 1% for the week. This discrepancy indicates that investors are placing bets on weakness rather than following a trend of strength. As an unhedged ETF, currency fluctuations could have contributed to the fall. If the yen weakened against the dollar during the week, U.S.-based investors would see lower returns even if Japanese stocks were flat locally. However, looking at the year-to-date performance, EWJ rose more than 13%.

Trade Clarity And Economic Indicators Strengthen The Argument

Trade clarity is important because export-driven industries, such as autos, machinery, and industrial equipment, are major drivers of Japan's equity market indexes. A clearer understanding of tariff treatment mitigates earnings volatility during a period of global policy change.

The Japanese economic environment is complex and contributes to the investment thesis. Real wages in Japan continued to be challenged in the previous year because salaries did not keep pace with inflation, indicating that domestic challenges persist despite declining inflation.

In terms of policy, the Bank of Japan is giving mixed signals. With core inflation close to target levels, markets have factored in the possibility of additional rate hikes in the second half of 2026, marking a departure from the Bank of Japan's traditional ultra-accommodative policy, although some government officials continue to stress the need for coordination between fiscal and monetary policies.

For ETF investors, these trends are more than just macro trivia, as changes in inflation trends, wage trends, and interest rate views have a direct bearing on currency patterns, earnings forecasts, and relative valuations, which are fundamental drivers of global equity flows.

Emerging Markets Rotation In A Larger Context

The strong inflow was not limited to Japan. The large weekly inflow into VWO suggests that investors continue to build their emerging market allocations even as U.S. markets remain close to record highs. Most emerging market indexes remain priced at valuation discounts relative to the U.S. market, with growth stories driven by demographic growth, commodity cycles, and structural reforms.

Taken together, the latest ETF flows suggest that investors are not simply reacting to trade headlines. Instead, capital appears to be rotating internationally, with Japan and broader emerging markets increasingly central to that shift, as allocators seek diversification and exposure to policies and structural trends playing out outside the U.S. equity complex.

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