Japan’s stock market just hit a record high - and global investors are paying attention again

This week, Japanese stocks pushed to fresh record highs, helped by a weaker yen and growing bets on political and policy continuity. Those dynamics have now sharpened further as markets react to concrete signs that Prime Minister Sanae Takaichi is preparing to call a snap election, a move investors see as paving the way for more fiscal stimulus.

Japan just reminded markets of something they sometimes forget: it’s one of the world’s largest equity markets, packed with global companies that quietly sit inside most long-term portfolios.

Let’s explore how stocks, currencies and politics interact - and why those connections matter even if you’ve never looked at a Japanese ticker.

Stocks up, yen down: what’s actually happening in Japan

Early this week, Japan’s Nikkei 225 stock index hit a new record high, extending a rally that’s been building for months. On Tuesday it jumped about 3.1%, then climbed again on Wednesday to close above 54,000 for the first time, while the broader Topix index also set a fresh peak.

At the same time, the Japanese yen weakened sharply, sliding to its lowest level against the U.S. dollar since mid‑2024 and to multi‑year lows against several European currencies. The dollar briefly traded at around ¥159, meaning 1 U.S. dollar bought roughly 159 yen - close to the levels that previously triggered official intervention to support the currency.

The stock index hitting a new record high while the yen weakened aren’t contradictory - they’re connected.

Stock indices measure the value of companies listed in Japan. The yen is Japan’s currency. When the currency falls while share prices rise, it often means global investors are buying Japanese companies while selling or avoiding the currency itself.

The currency move is tied to politics and policy expectations. Japan is heading toward an election later this month, and markets expect the next government to prioritise economic support over tightening things up.

Prime Minister Sanae Takaichi’s coalition partner has now said she intends to dissolve the lower house soon after parliament reconvenes on 23 January, paving the way for a snap poll in February. That means investors expect more government spending, low interest rates, and no big push to make the yen stronger anytime soon.

That mix tends to be supportive for Japanese stocks, at least in the short term.

A weaker yen also helps many of Japan’s biggest companies. When exporters sell products abroad and earn dollars or euros, those foreign earnings are worth more once they’re converted back into yen. Because exporters make up a large share of Japan’s stock indices, a falling currency can lift the whole market.

So‑called “Takaichi trades” have focused on sectors like technology, defence and basic materials that are seen as beneficiaries of weaker yen and higher government spending.

Why international investors are leaning into Japan again

Japan hasn’t been ignored so much as underweighted - especially compared with the U.S. But that balance has been shifting.

One reason is corporate behaviour. Japanese companies have been under pressure to use their cash more productively and think more about shareholders. That’s shown up in higher dividends and more share buybacks - not dramatic, but meaningful for long-term returns.

Another reason is relative appeal. U.S. markets are expensive by historical standards, while China still carries political and economic uncertainty. Japan sits somewhere in between: large global companies, improving governance, and fewer headline shocks.

Finally, there’s policy stability. While many central banks are juggling inflation and political pressure, Japan’s approach has remained cautious and predictable. Even after the Bank of Japan lifted interest rates off negative territory in late 2025, they remain very low by global standards, and investors broadly expect any further tightening to be gradual. For large institutional investors, that steadiness matters.

Taken together, that’s why global investors have been gradually increasing their exposure to Japanese equities - not as a short-term trade, but as part of a broader rebalancing. The latest election headlines have simply poured fuel on a rally that was already being supported by valuations, reforms and steady policy.

How this shows up in your portfolio (even if you never bought a Japanese stock)

Chances are, you’re probably already invested in Japan.

Most global or developed-market equity funds include Japanese stocks automatically. After the U.S., Japan is often one of the largest country allocations in indices like MSCI World. So when Japanese markets rise, it quietly supports the performance of those funds.

There’s a difference, though, between owning Japan as part of a global mix and investing in it directly. A single-country fund gives you more exposure to currency swings and local politics. A global fund smooths that out, letting Japan contribute when conditions are favourable and fade when they’re not.

For most long-term investors, that quieter role is often exactly the point.

What to watch next

One thing to watch is whether Japan’s corporate reforms keep translating into real shareholder returns.

Another is the yen. Continued weakness supports exporters, but a sudden policy shift or direct intervention could change the dynamic quickly - especially for international investors.

Officials have already signalled discomfort with “one‑way” yen moves, and the currency is approaching levels where the finance ministry has stepped in before.

Finally, earnings matter. Rising share prices are easier to sustain when company profits grow alongside them. If earnings lag, enthusiasm can cool just as quietly as it built up. Election timing and the size of any post‑vote stimulus package will also shape how durable the current “Takaichi trade” really is.

The practical takeaway for Female Invest members isn’t to rush into Japan or to start timing elections in Tokyo. It’s to recognise that global diversification already includes places like Japan, and that quieter markets can matter a lot when conditions align.

Understanding that helps you stay invested, stay patient, and trust your portfolio strategy - and time - to do the heavy lifting.