Weakened Yen Boosts Japanese Stock Market

The Japanese yen has been steadily weakening against major world currencies, hitting a four-month low recently. The U.S. Treasury intervened to prop up the currency, but despite this, Japan's stock market is thriving. The iShares MSCI Japan Index Fund (EWJ) is up about 19% so far in 2026, outperforming the S&P 500 index.

The Bank of Japan has kept its benchmark interest rate low for years, which has led to a decline in the yen's value as global capital flows to countries with higher interest rates. However, this weakening currency actually benefits Japanese exporters like Toyota Motor (TM), Hitachi, and Sony Group (SONY). These companies see increased demand for their products due to the lower yen price.

Japan's economy expanded at an annualized rate of 2.1% in the first quarter, beating expectations. Exports rose 11.5% year over year, driven primarily by a 29% increase in shipments of semiconductor equipment. Tokyo Electron is one of the world's largest manufacturers of chip-making equipment.

However, there is one major risk facing Japan's economy: energy. The country imports about 97% of its oil supply, and about 90% comes from the Middle East region. Supply disruptions and oil price spikes could slow Japan's economy. Despite this risk, the author remains bullish on Japan and recommends investing in the iShares MSCI Japan Index ETF.