ETF Spotlight: Japan equities jump on trade data, outlook supported by structural strengths

• Japan's Nikkei 225 is up roughly 20% year-to-date, with April exports rising 14.8% year-on-year — the fastest pace since January — driven by semiconductor shipments that reinforce the market's structural positioning in the global AI supply chain.

• Three structural drivers underpin the longer-term outlook: BOJ policy normalisation, a corporate governance reform cycle the Japan Exchange Group estimates is only 15–20% complete, and diversified AI infrastructure exposure spanning semiconductor equipment, materials, and physical robotics.

• The Xtrackers Nikkei 225 UCITS ETF 1D (LSE: XDJP) is our top ETF pick, with the lowest expense ratio and a smallest tracking difference among peers.

• We recommend investors maintain exposure to Japanese equities through the Xtrackers Nikkei 225 UCITS ETF 1D (LSE: XDJP), the most cost-efficient instrument available for broad Nikkei 225 access.

Japan’s Nikkei 225 surged more than 3% today following the release of the latest trade data, with April exports rising 14.8% year-on-year — the fastest pace since January — driven by strong semiconductor shipments and comfortably beating market expectations.

The move extends an already strong year for Japanese equities: the Nikkei is up roughly 20% year-to-date, having rebounded swiftly from the earlier Middle East–driven energy shock to reach fresh record highs. This resilience is not incidental. Beneath the headline price action, Japan’s structural investment case continues to strengthen, underpinning a constructive longer-term outlook.

Why invest in Japan equities?

Three structural drivers continue to support Japan’s long-term equity outlook. First, monetary policy normalisation is now firmly underway. After decades of near-zero rates, the Bank of Japan raised its policy rate to 0.75% in December 2025, the highest level in 30 years. The shift is supported by a third consecutive year of roughly 5% wage growth from the 2026 Shunto negotiations, reinforcing a healthier domestic demand cycle and signalling that Japan is finally emerging from its long deflationary era.

Markets are increasingly positioning for another rate hike as early as June, especially after the BOJ’s April meeting produced a 6–3 split in favour of further tightening. As the interest rate gap with the US narrows, yen-funded carry trades are gradually unwinding, supporting a modest appreciation in the yen.

Second, corporate governance reform continues to drive a structural re-rating in Japanese equities. Since the Tokyo Stock Exchange launched its reform push in March 2023, Prime Market price-to-book ratios have risen from 1.2x to 1.6x. Share buybacks have also accelerated, while cross-shareholdings are being steadily dismantled. More importantly, Japan Exchange Group’s CEO estimates that the reform process is only 15–20% complete, implying that much of the governance-driven re-rating still lies ahead.

Third, Japan holds a critical position in the global AI infrastructure buildout. Unlike Korea’s heavier concentration in memory semiconductors, Japan’s exposure spans multiple bottlenecks across the semiconductor value chain. Companies such as Tokyo Electron, Advantest, and Shin-Etsu Chemical remain deeply embedded in semiconductor manufacturing and materials supply. Japan is also strengthening its role in physical AI and robotics. In May 2026, Fanuc announced a strategic collaboration with Google to integrate AI cognitive intelligence into industrial robot systems, directly linking Japan’s automation leadership to the next phase of AI deployment. At the same time, Japanese financials are positioned to benefit from expanding net interest margins as the rate cycle turns.

Taken together, Japan offers a differentiated structural growth story, supported by policy normalisation, governance reform, and broad-based exposure to the global AI supply chain.

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Introducing the Xtrackers Nikkei 225 UCITS ETF 1D (LSE: XDJP)

The Xtrackers Nikkei 225 UCITS ETF 1D provides direct exposure to Japan’s large-cap equity market by replicating the performance of the Nikkei 225 Net Total Return Index. The ETF uses physical replication and holds 225 of Japan’s largest and most liquid blue-chip companies listed on the Tokyo Stock Exchange.

The Nikkei 225 is a price-weighted index that is reviewed semi-annually, with constituents selected based on liquidity and sector representation. Reflecting the index structure, the ETF remains tilted toward technology, which accounts for 31.92% of the portfolio. This provides meaningful exposure to Japan’s semiconductor and electronics supply chain, an area directly leveraged to the global AI infrastructure buildout. Industrials represent 19.44% of the portfolio, capturing Japan’s advanced manufacturing and defence-adjacent companies. Financials account for 3.08%, a relatively modest weighting despite the sector’s direct exposure to Japan’s monetary policy normalisation cycle, largely due to the index’s price-weighted construction.

Figure 1: Technology is the largest sector exposure within XDJP

The ETF’s top holdings further reinforce its technology-heavy positioning and direct exposure to Japan’s key structural growth drivers. Advantest and Tokyo Electron together account for roughly 19% of the portfolio, giving the fund significant exposure to the global AI infrastructure buildout through semiconductor manufacturing and testing equipment.

The top holdings also provide exposure beyond semiconductors alone. Fast Retailing adds consumer sector exposure, while SoftBank Group strengthens the portfolio’s technology and digital infrastructure positioning. Meanwhile, Shin-Etsu Chemical and Fanuc deepen the ETF’s alignment with Japan’s role across the AI supply chain, spanning specialty materials, robotics, and factory automation.

Table 1: Top 10 holdings of XDJP

Rank	Holding	Weight (%)
1	Advantest Corp	11.46
2	Fast Retailing Ltd	9.95
3	Tokyo Electron Ltd	7.5
4	SoftBank Group Corp	7.06
5	TDK Corp	2.44
6	Shin-Etsu Chemical Ltd	2.04
7	Fujikura Ltd	2.02
8	Fanuc Corp	1.94
9	KDDI Corp	1.75
10	Ibiden Ltd	1.52
Total		47.68
Source: DWS. Data as of 30 April 2026.

Peer Comparison

Three ETFs provide direct exposure to the Nikkei 225: the Xtrackers Nikkei 225 UCITS ETF 1D, iShares Nikkei 225 ETF, and CSOP Nikkei 225 Index ETF. Across the key metrics that matter most for long-term investors — cost, tracking quality, scale, and liquidity — XDJP stands out as the strongest option.

Table 2: XDJP stands out across multiple metrics comparing among ETFs tracking Nikkei 225 Index

Metric	Xtrackers Nikei 225 UCITS ETF (LSE: XDJP)	iShares Nikkei 226 ETF (LSE: CNKY)	CSOP Nikkei 225 Index ETF (HKEX: 3153)
Inception	25-Feb-13	15-Sept-10	31-Jan-24
AUM (April 2026)	GBP 1.60 billion	GBP 582.4 million	HKD 1.32 billion
Total Expense Ratio	0.09%	0.48%	0.99%
2Y Tracking Difference with the Nikkei 225 Total Return Index	-0.39%	-0.92%	-4.44%
Trailing 12m dividend yield	1.11%	-	-
90 Day Average Aggregate Volumn	372,100	17,100	16,800
Bid-ask spread	0.25%	0.24%	0.25%
All returns are in GBP terms Source: Bloomberg Finance, iFAST Compilation
Data as of 16 Mar 2026.

The cost advantage is particularly compelling. XDJP charges an annual expense ratio of 0.09%, compared with 0.48% for CNKY and 0.99% for 3153. Over time, the difference becomes meaningful as lower fees reduce performance drag and improve compounding returns.

Tracking performance further strengthens the case for XDJP. Among the three ETFs, XDJP delivers the smallest two-year tracking difference against the Nikkei 225, indicating more efficient index replication and lower implementation friction for investors seeking precise benchmark exposure.

Liquidity is where XDJP’s lead becomes most decisive. The ETF recorded a 90-day average aggregate trading volume of 372,100 shares, roughly 22 times higher than CNKY’s 17,100 shares and CSOP 3153’s 16,800 shares. Higher liquidity improves execution efficiency and lowers transaction costs, particularly for investors building or adjusting larger positions.

Taken together, XDJP offers the strongest combination of cost efficiency, tracking quality, fund scale, and trading liquidity among Nikkei 225 ETFs. For investors seeking direct exposure to Japanese equities, XDJP is the best option.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.