Japan’s blue-chip exporters, like autos and steel, are facing high tariffs from the US. This could put pressure on some corporate earnings, but others could benefit from improving corporate governance, says Kate Marshall, lead investment analyst at Hargreaves Lansdown.
With China making progress in trade talks with the US over the weekend, investors look to whether Japan could be next in line to negotiate. Like many across the globe, Japan’s exporters face the threat of high tariffs from the US. The country faces a 25% tariff on car, steel and aluminium exports and 24% on many other goods.
When tariffs were first announced on so-called ‘Liberation Day’, Japan had the potential to be in a decent position to negotiate with the US, or at least it thought it did. The country is the biggest provider of foreign investment into the US, and a lot of big Japanese companies, like Toyota, have got factories there. Japan is also often considered America’s closest ally in Asia.
While Japan was one of the first to begin tariff negotiations, the US has so far said it won’t budge on the 10% levy that applies to all countries or the tariffs on cars and steel products. If things don’t turn out the way Japan expects, exporters’ earnings could come under pressure. Toyota, for example, has already seen, and expects to continue to see, a significant drop in profits.
We’ve since seen the Bank of Japan cut its 2025 growth forecast from 1.1% to 0.5% because of the tariff hit. And the return to inflation we’ve seen in recent years, following decades of stagnant growth, looks like it could be on pause.
Japan’s annual inflation rate was 3.6% at the end of March 2025, down slightly from 3.7% in the previous month. But while inflation has been moderate overall, it’s been uneven. The prices of everyday staples and food items like eggs and rice are reported to be up 50% and 80% respectively. A weaker Japanese yen in recent years has made prices more palatable for tourists. But it’s a different story for domestic consumers.
Some train fares also hadn’t risen since the late 1980s, but that’s changing too. The previously government-owned Tokyo Metro’s IPO last year signalled a shift in two ways. Firstly, March saw its first fare increase in nearly 30 years, which might be unwelcome for busy commuters, but could improve earnings. Secondly, it demonstrates the government’s increasing willingness to relinquish control over corporates, and for companies to have more flexibility to improve shareholder returns.
Corporate activism and shareholder engagement in general is on the rise, and companies are responding. Another example is the convenience store giant 7-Eleven. The shop’s parent company, Seven & I Holdings, recently rejected a takeover offer from a foreign business. This has happened with relatively little government interference – this is unusual as foreign takeovers haven’t been favoured by the state in the past. While the takeover hasn’t gone through, discussions are ongoing. All of this reflects a more open stance on foreign investment from the government and a growing emphasis from companies on shareholder value.[KM1]
Another example of this is that Japanese companies announced share buybacks in April which tripled on the previous year. Another sign that businesses are thinking more about how to more efficiently run their finances and recognise shareholders.
Investment ideas
Investors excited about the longer-term prospects for an economy that really is quite different from any other in the world could consider some of HL’s favourite picks for investing in Japan.
Man GLG Japan CoreAlpha
Man GLG Japan CoreAlpha focuses on larger Japanese companies. The fund managers use a contrarian approach often known as ‘value investing’. Their discipline in buying out-of-favour companies and gradually selling them as they recover sets them apart.
It means autos such as Nissan, Toyota and Honda currently make up some of the fund’s largest investments. It also has exposure to steel and railway companies. In addition, the fund also a stake in the convenience store operator Seven & I Holdings.
The fund could work well in a portfolio designed to provide long-term growth. Its focus on large companies means it could sit well alongside a Japanese equity fund focused on medium-sized or smaller companies.
Baillie Gifford Japanese
Baillie Gifford Japanese uses a different investment style known as growth investing. This means it focuses on companies with high or sustainable growth potential and is less likely to invest in companies significantly out of favour.
This sees the fund invest in some more technology-related companies, such as Nintendo and Sony. It also invested in Tokyo Metro after it listed on the Japanese stock market.
The funds focus on high-quality companies with the potential for above-average earnings growth means it could work well alongside other value-focused funds.
iShares Japan Equity Index
iShares Japan Equity Index provides low-cost exposure to large and medium-sized companies in Japan.
The fund aims to track its benchmark, the FTSE Japan, by investing in every company in the index. Around 5% of the fund invests in smaller companies. Smaller companies have greater growth potential but can experience more extreme price movements.
An index tracker fund is one of the simplest ways to invest. This fund could be a great, low-cost starting point to invest in Japan in a portfolio aiming for long-term growth.”
Performance data – annual percentage growth
| 30/04/2020 to 30/04/2021 | 30/04/2021 to 30/04/2022 | 30/04/2022 to 30/04/2023 | 30/04/2023 to 30/04/2024 | 30/04/2024 to 30/04/2025 | |
| Man Japan CoreAlpha | 19.65 | 9.70 | 14.56 | 22.03 | 2.08 |
| Baillie Gifford Japanese | 29.48 | -12.06 | 0.05 | 2.73 | 1.97 |
| iShares Japan Equity Index | 17.96 | -4.52 | 5.32 | 17.75 | 1.46 |
| IA Japan | 21.11 | -6.03 | 5.37 | 16.32 | 3.41 |
Written by Kate Marshall, lead investment analyst at Hargreaves Lansdown.
