Nikkei Tops 62,000 as ETF Flows Surge on AI, Reforms

The Nikkei 225 closed above 62,000 for the first time as roughly $6.3 billion in net inflows have gone into Japan-focused exchange-traded funds this year. Gains were concentrated in technology names tied to artificial intelligence, while corporate governance changes and evolving Bank of Japan policy coincided with the rally.

Prime Minister Sanae Takaichi’s government increased fiscal support and backed strategic public-private investment. The Tokyo Stock Exchange introduced rules that encouraged companies to return more cash to shareholders; listed firms have announced higher dividends and record share buybacks compared with prior years.

Institutional reallocations show strong demand for broad-market and specialized Japan ETFs. The iShares MSCI Japan ETF (EWJ) held about $20.4 billion in assets with roughly $3.74 billion in net inflows. The JPMorgan BetaBuilders Japan ETF (BBJP) had about $16.15 billion in assets and $1.24 billion in net inflows. The Franklin FTSE Japan ETF (FLIP) attracted about $775 million, while the WisdomTree Japan Hedged Equity Fund (DXJ) drew about $617 million.

Technology companies were a key source of returns. SoftBank provided early-cycle exposure to AI-related investments. The WisdomTree Japan Opportunities Fund (OPPJ) was up about 23% year-to-date and outpaced the standard MSCI Japan Index in the same period.

Currency dynamics influenced investor choices. The Bank of Japan began normalizing rates in late 2025 and the yen subsequently stabilized. Currency-hedged products such as DXJ remove yen volatility for U.S.-dollar investors, while unhedged funds like EWJ and BBJP offer exposure that can benefit from both local stock gains and yen appreciation.

Market data and analyst forecasts add context for 2026. Nomura projects about a 14% rise in TOPIX earnings next year, citing corporate price increases and steady global demand. Goldman Sachs expects a shift in returns toward domestic demand rather than reliance mainly on exports. Reported record buybacks and double-digit earnings growth have been noted by market participants.

Foreign allocations to Japan are moving back to neutral after roughly two decades of being underweight, and market leadership is broadening beyond traditional exporters and a handful of megacaps. Risks include global demand shocks and shifts in central bank policies, which could affect market direction and currency moves.