Five reasons to consider investing in Japan

By Juliet Schooling Latter on 22 July 2026 in Asia/Emerging Markets

Japan has re-emerged as one of the most talked-about investment markets in recent years, supported by corporate reforms, an improving economy and renewed investor interest. But should you invest in Japan, and is now the right time to commit your money? Here we reveal five reasons Japan could be an attractive opportunity and highlight which Japanese investment funds are worth considering.

World-leading companies

Japan is home to numerous multibillion-dollar businesses across a variety of sectors, including financial services, automotive manufacturing, and software. Household names such as Toyota, Honda and Nintendo sit alongside innovative businesses helping to drive technological change. SoftBank Group, which invests heavily in AI, is a prime example.

Investors looking for broad exposure to these established market leaders could consider JK Japan, a core large-cap fund, which identifies investment themes and then carries out bottom-up stock analysis to find the best opportunities. Its lead manager, Simon Jones, has more than 35 years’ experience and has enabled the fund to deliver solid, steady performance with a proven process. The fund has a pragmatic, style-agnostic approach with the team looking for valuation, momentum, strong technicals and qualitative factors.

Of course, Japan’s appeal extends beyond its global household names. It can also play a valuable role in building a more diversified investment portfolio.

Diversification

Japan is a useful diversifier, but while many global equity funds will have some exposure to the country, it’s usually a relatively small amount. For example, it’s the third-largest geographic region in the T. Rowe Price Global Select Equity fund, yet it accounts for less than 4% of the portfolio*.

Investing in a dedicated Japan fund will, therefore, increase your exposure to the country, its companies, and its future prospects. And it’s not just global giants that are of interest. There are almost 4,000 companies listed on the Tokyo Stock Exchange, and you can increase diversification by embracing businesses further down the market capitalisation scale with a dedicated fund. Those wanting to tap into Japan’s vibrant smaller-company universe may prefer M&G Japan Smaller Companies fund.

As well as broadening geographical exposure, Japan’s market also offers attractive characteristics that continue to draw investors.

Attractive valuations

Although Japanese equities have enjoyed a strong run, with the Nikkei 225 Index rising over 35% since the start of 2026 and by more than 60% over the past year**, many investors believe further upside remains because earnings, governance reforms and shareholder returns continue to improve.

Despite being one of the world’s largest equity markets, Japan can still fly under the radar for many investors, according to an interim report from the Baillie Gifford Japan Trust. “It’s a market that remains relatively under-researched compared to a number of its developed market peers, offering potential excess return opportunities for active investors,” it stated.

The trust aims to provide capital growth by investing primarily in Japanese small and medium-sized companies with exceptional prospects and sustainable business models.

Much of that optimism stems from structural changes taking place within corporate Japan itself.

Corporate governance reforms

One of the most powerful drivers of Japan’s equity re-rating has been the sustained momentum behind corporate governance reforms. According to Fidelity International, average return on equity is projected to rise meaningfully as reforms deepen, narrowing Japan’s long-standing valuation discount to global peers***.

Companies are improving capital efficiency, cross-shareholdings are being unwound, shareholder distributions have risen sharply, and share buybacks are a more prominent tool. Investors are also more confident in demanding change and holding businesses to account, a positive result of corporate governance improvements.

June was AGM season in Japan, with a record 139 shareholder proposals submitted by activists and institutional investors, according to the latest AVI Japan Opportunity Trust update. It stated: “We were encouraged by the level of shareholder support received and believe the results demonstrate the growing willingness of Japanese shareholders to hold boards accountable on capital allocation, governance and long-term value creation.”

These governance improvements are being supported by a broader recovery in Japan’s economy, helping to strengthen the long-term investment case.

Improving economic backdrop

Richard Kaye, manager of Comgest Growth Japan, recently told us that there had been a shift in sentiment in the country. He hailed Sanae Takaichi, the country’s first female prime minister, for engaging young people in politics for the first time in a generation. “One feels that the consumer is back, infrastructure spending is back, capital spending by companies in Japan is back, and it’s all great,” he said.

Similarly, Grant Feng, senior economist at Vanguard, believes Japan’s economy has continued to recover, despite some drag from higher crude oil prices. Elsewhere, Eastspring Investments anticipates a gradual recovery in real wages, which it sees as a key driver for stronger domestic consumption and demand.

Japan is no longer simply a recovery story. Improving corporate governance, stronger domestic demand and world-class businesses provide several reasons why investors continue to increase exposure. While no market is without risks, a dedicated Japan fund could offer useful diversification alongside global equity holdings.

*Source: fund factsheet, 31 May 2026
**Source: FE Analytics, total returns in pounds sterling, to 19 July 2026
***Source: Fidelity International, 18 March 2026