Japan's Stock Market Defies Weakened Yen

The Japanese stock market has been performing well this year, despite the weakening yen. The iShares MSCI Japan Index Fund (NYSEMKT: EWJ) is up about 19% so far in 2026, beating the S&P 500 index's gain of around 13%. This anomaly can be attributed to several sectors driving growth, including technology, financials, basic materials, and industrials.

The yen has been weakening against the dollar for years, hitting a 40-year low in July. The Bank of Japan's decision to keep its benchmark interest rate low has led global capital to flow towards countries with higher rates, causing the yen to decline. However, this trend is beneficial for Japanese exporters like Toyota Motor (NYSE: TM), Hitachi, and Sony Group (NYSE: SONY).

Japan's economy expanded at an annualized rate of 2.1% in the first quarter, exceeding expectations. Exports rose by 11.5% year-over-year, primarily driven by a 29% increase in shipments of semiconductor equipment.