The iShares MSCI Japan ETF Has Surged. What Investors Should Consider Before Buying Now.

International stocks -- both the developed and emerging market varieties -- are extending last year's outperformance of the S&P 500 in the early stages of 2026. For many investors, a broad-based index fund is the preferred way to access non-U.S. stocks, but some market participants choose to take on tactical exposures targeting specific countries.

Fortunately, they don't have to embrace exotic, potentially turbulent fare. Rather, they can consider funds like the iShares MSCI Japan ETF (NYSEMKT: EWJ), which is soaring -- and there are indications that this exchange-traded fund (ETF) has more gas in 2026.

This Japan ETF is benefiting from domestic policy and market-minded reforms. Image source: Getty Images.

For those that aren't familiar with single-country ETFs, this Japan fund is one of the oldest and easiest to understand in the lot. This $18.3 billion fund turns 30 next month and tracks the MSCI Japan index, a cap-weighted gauge of Japanese equities. Overall, this ETF is approachable for even novice investors, but some homework is still required.

In Japan, elections matter, too

Even investors focusing exclusively on U.S. stocks learn that politics matter and that "elections have consequences." That lesson has been firmly taught and reiterated over the past decade, and it's true in countries around the world, including Japan.

The good news for market participants seeking international exposure via the Land of the Rising Sun is the evident enthusiasm of global investors for Prime Minister Sanae Takaichi. She's the country's first female prime minister, and while that's an interesting historical footnote, her policies are what's important to investors. Market participants and voters like what she's driving toward because in recent snap elections, Takaichi and the Liberal Democratic Party (LDP) cruised to a resounding victory.

For investors considering the iShares MSCI Japan ETF, Takaichi's popularity is relevant. So is understanding why voters (and investors) like her. She's viewed as bold and decisive, a departure from some of her predecessors, who were seen as too cautious.

Takaichi needs to be bold to continue Japan's emergence from decades of deflation, and she's showing she's up to the task, proposing massive stimulus to support technology and stoke inflation. It sounds counterintuitive to those in the U.S., where inflation is seen as a four-letter word, but Japan wants inflation. It would drive wage growth. Couple that with Takaichi's plans to boost domestic tech investment, and the iShares ETF is all the more appealing because it devotes 30% of its weight to consumer discretionary and tech stocks.

Shareholder rewards in focus

Another tailwind for this Japan ETF is the country's improving shareholder rewards story, supported by the MSCI Japan index's return on equity (ROE), which is well above its 15-year average.

For decades, Japanese companies were leaders in terms of generating cash flow, but they were tightfisted when it came to dividends and buybacks. That's changing for the better. Over the past five years, dividend payout expectations for the MSCI Japan index have surged 38%, confirming that government reforms compelling corporations to return more cash to investors are paying, well, dividends. As of Jan. 31, the iShares ETF had an impressive trailing-12-month dividend yield of 4.22%.

Don't forget the share buybacks. Over the past two years, share repurchases by MSCI Japan index member firms were significantly ahead of the pace seen in the 2010s, further helping to bolster the fund.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.