Tensions in the Middle East dominated headlines in the first part of 2026, but a tentative de-escalation has let some countries return to domestic issues.
This is something of a relief for Japan, which is a large importer of Middle Eastern energy. Sustained higher oil prices risked pushing up inflation and the government stepped in with subsidies, aimed at limiting any spike in fuel prices for consumers.
This article is for information only and not personal financial advice. Investing can help your money grow, but the value of investments can rise and fall, so you could get back less than you put in. Investing is for the long term, typically 5 years or more.
If you’re not sure investing is right for you, a financial adviser can help.
Government spending plans
Earlier this year, Sanae Takaichi was elected as Prime Minister having pledged to restore Japan’s economy to growth.
In June, Takaichi unveiled her long-term investment plan for the country. The roadmap involves investing ¥370tn, around £1.7tn, by 2040, across 17 different areas of focus. These cover a range of industries spanning technology, defence, energy, and life sciences.
The announcement caused an initial surge in yields of Japanese government bonds as investors feared the plans may require greater government borrowing.
At the same time the Yen has continued to weaken. The currency, often seen as a ‘safe haven’ in times of market stress, has reached its lowest value in 40 years. This suggests investors may be cautious about future inflation in the country.
That said, a weaker currency can benefit Japanese companies who export goods, making those businesses more competitive on the global stage – a potential boost to certain areas of the stock market.
How has the Japanese stock market performed?
Over the three months from April to June 2026, Japan’s stock market rose steadily, with the MSCI Japan index gaining 13.5%. Past performance isn’t a guide to the future, and this is a short period over which to assess performance.
Technology stocks have dominated market growth as continued artificial intelligence (AI) excitement spread to Japan.
Semiconductor companies and other hardware businesses saw strong share price growth in the past quarter as demand for their products increased. Banks also performed well as interest rates continue to rise.
From a style perspective, the most recent quarter saw significant outperformance of the ‘momentum’ factor. This is where investors buy stocks that have performed well recently in the belief that they will continue to outperform. Of course, there are no guarantees this will be the case, and the market can change course quickly.
Annual percentage growth
June 2021 to June 2022 | June 2022 to June 2023 | June 2023 to June 2024 | June 2024 to June 2025 | June 2025 to June 2026 | |
|---|---|---|---|---|---|
MSCI Japan | -8.59% | 13.31% | 14.18% | 5.43% | 33.75% |
MSCI Japan Growth | -17.25% | 13.51% | 6.88% | 4.45% | 29.43% |
MSCI Japan Value | 0.48% | 13.14% | 21.62% | 6.06% | 38.15% |
How have Wealth Shortlist funds performed?
Japan’s stock market is often style driven. This comes down to a relative divide in the market between growth-styled technology-related stocks and value-focused companies in the ‘old economy’, like banks and automobile manufacturers.
When a rotation in style occurs, it can impact performance. Over the last year, as has been the trend for some time, value companies have outperformed growth.
Investing in funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own and they understand the specific risks of the fund before they invest. Fund managers with different strengths, styles and areas of focus will perform differently in different economic conditions.
For more detail on each fund, it's charges, and specific risks, please see the links to their factsheets and key investor information below.
The Man Japan CoreAlpha fund returned 33.5%* over the year to the end of June 2026. It performed better than both the stock market and average fund in the IA Japan sector.
The managers’ stock selection contributed to performance. The fund’s value investing style also helped over the year.
The fund invests in a relatively small number of companies, which means each one can have a meaningful impact on performance. This is a higher risk approach.
The Baillie Gifford Japanese fund did not perform as well, though still returned 21.5%. Its growth investment style held back performance compared with value-focused peers.
The fund invests less in what the managers see as shorter-term beneficiaries of Japan’s improving economic backdrop, and more in companies they believe have superior longer-term prospects.
Some of the fund’s investments in technology businesses detracted from performance. While hardware providers performed well due to AI-related exposure, companies like Sony and software business Freee KK have not performed as well.
Given the different investment styles, we expect the Baillie Gifford and Man funds to perform well at different times. The Baillie Gifford fund also offers diversification by investing in some medium-sized businesses, which could offer longer-term growth potential, though smaller businesses are also higher risk.
The funds could be held together in a broader investment portfolio to increase diversification, or one could diversify a portfolio that’s already biased towards a particular style.
Annual percentage growth
June 2021 to June 2022 | June 2022 to June 2023 | June 2023 to June 2024 | June 2024 to June 2025 | June 2025 to June 2026 | |
|---|---|---|---|---|---|
Man Japan CoreAlpha | 8.11% | 16.11% | 14.39% | 9.15% | 33.47% |
Baillie Gifford Japanese | -18.67% | 6.06% | 5.99% | 4.97% | 21.45% |
IA Japan | -11.76% | 12.72% | 11.04% | 7.15% | 32.36% |