Japan's Stock Market Renaissance: How XEQT Gives You Front-Row Seats to the Nikkei's Historic Recovery

I remember the exact moment. It was a cold February morning in 2024, and I was scrolling through the news while waiting for my coffee to brew. The headline hit me like a freight train: “Nikkei 225 surpasses 1989 all-time high for the first time in 34 years.” Thirty-four years. I let that sink in. An entire generation of Japanese investors had waited longer than most mortgages last just to break even. And here it was, finally happening.

My second thought was more selfish: Do I own any of this?

I pulled up my Wealthsimple account, clicked into my XEQT holdings, and started digging. Turns out, yes — I’d been sitting on Japanese stocks the entire time. Toyota, Sony, Mitsubishi, Tokyo Electron — they were all in there, tucked inside one of XEQT’s underlying ETFs. I hadn’t bought a single Japan-focused fund. I hadn’t read a research report on the Tokyo Stock Exchange. I hadn’t done anything except buy XEQT every payday and go about my life. And somehow, I had front-row seats to one of the greatest stock market comebacks in history.

That moment crystallized something I’d been slowly learning about investing: the best trades are often the ones you never have to make.

1. The Greatest Comeback Story in Stock Market History

To appreciate what happened in Japan, you need to understand just how bad things got.

In December 1989, the Nikkei 225 — Japan’s flagship stock index — peaked at 38,957 points. At the time, Japan was the undisputed economic miracle of the 20th century. The country’s stock market represented roughly 40% of the entire world’s market capitalization. Japanese real estate was so expensive that the land beneath the Imperial Palace in Tokyo was said to be worth more than all the real estate in California. Companies were valued at absurd multiples. Banks were lending with reckless abandon.

Then the bubble burst.

What followed wasn’t just a crash — it was a slow, grinding decline that lasted decades. The Nikkei fell 80% from its peak. Japan entered what economists now call the “Lost Decades” — a period of deflation, stagnation, and demographic decline that became the cautionary tale for an entire generation of investors.

For thirty-four years, “Japan” was shorthand for “what can go wrong.” Finance professors used it to argue that stocks don’t always go up. Bears cited it as proof that even great economies can stay down forever. If you’d invested at the 1989 peak, you’d still be underwater in 2023.

And then, on February 22, 2024, the Nikkei 225 closed above 39,098 — surpassing its 1989 record for the first time. The comeback was complete. Japan was back.

2. What Actually Changed? The Forces Behind Japan’s Revival

Japan’s recovery wasn’t an accident. Several structural forces converged to pull Japanese stocks out of their multi-decade funk.

Corporate Governance Reforms

This is the big one. Starting around 2014, the Tokyo Stock Exchange began aggressively pressuring Japanese companies to improve capital efficiency. For decades, Japanese corporations had been sitting on mountains of cash, cross-holding shares in other companies, and generally ignoring shareholders. Return on equity at many firms was embarrassingly low.

The TSE introduced new listing requirements, essentially telling companies: if you’re trading below book value, you need to publish a plan to fix it — or risk being delisted. This was revolutionary for Japan. Companies started:

• Unwinding cross-shareholdings (selling stakes they’d held in partner companies for decades)
• Launching stock buyback programs at record levels
• Increasing dividend payouts to attract investors
• Appointing independent board directors for the first time
• Setting return-on-equity targets and actually being held accountable

The result? Japanese companies started behaving more like their Western counterparts, and global investors noticed.

The Warren Buffett Effect

In 2020, Warren Buffett’s Berkshire Hathaway revealed it had taken significant stakes in five major Japanese trading houses: Mitsubishi, Mitsui, Itochu, Marubeni, and Sumitomo. When the world’s most famous value investor puts billions into Japanese stocks, people pay attention.

Buffett continued increasing his positions through 2023 and 2024, calling Japan “a great opportunity.” His endorsement helped shift the narrative from “Japan is a value trap” to “Japan is undervalued and finally changing.”

A Weaker Yen

The Japanese yen weakened significantly against the US dollar and other major currencies, falling to levels not seen since the 1990s. While that’s painful for Japanese consumers, it’s a massive tailwind for exporters — and Japan is an export powerhouse. Companies like Toyota, Sony, and Nintendo saw their overseas earnings balloon when converted back to yen.

Shareholder-Friendly Policies

Japanese companies collectively announced record stock buybacks in 2023 and 2024. According to Goldman Sachs data, buyback announcements from Japanese firms hit all-time highs, reducing share counts and boosting earnings per share. Dividend payouts also reached record levels.

The shift was cultural as much as financial. After decades of prioritizing stakeholders (employees, suppliers, community) over shareholders, Japanese boardrooms started embracing the idea that returning capital to investors wasn’t shameful — it was expected.

3. Japan’s Wild Ride: From 40% of the World to 6% and Back

Here’s a number that still blows my mind. At its 1989 peak, Japan represented roughly 40% of the MSCI World Index. If you’d owned a global stock fund in 1989, almost half your money was in Japan.

Think about what this means. A market-cap-weighted global index fund — the kind that XEQT essentially is — automatically adjusted Japan’s weight downward as its market shrank, and is now automatically increasing it as Japan recovers. No one had to predict anything. No one had to time the bottom. The math did the work.

This is one of the most underappreciated features of a fund like XEQT. It doesn’t just diversify you across countries — it dynamically adjusts your exposure based on what the market is actually doing.

4. How Much Japan Do You Actually Own Through XEQT?

Let’s trace the bread crumbs. XEQT holds four underlying ETFs, and your Japan exposure comes through one of them: IEFA (iShares Core MSCI EAFE ETF).

IEFA covers international developed markets — basically every rich country that isn’t the US or Canada. Within IEFA, Japan is the single largest country allocation at roughly 20-22% of the fund.

Here’s how it breaks down:

So if you have $100,000 in XEQT, roughly $4,000-$5,000 of that is invested in Japanese stocks. That might not sound like a lot, but it makes Japan your third-largest country exposure after the United States and Canada.

For perspective, that’s more than your allocation to the UK, France, or Germany individually. Japan is pulling serious weight in your portfolio.

5. The Japanese Companies Hiding in Your XEQT

Here’s where it gets fun. Through IEFA, you own pieces of some of the most iconic companies on the planet. Let me highlight a few:

I’ll be honest — there’s something satisfying about knowing that every time someone buys a Toyota Corolla, picks up a PlayStation controller, or plays a round of Mario Kart, a tiny fraction of that economic activity flows back to my XEQT holdings. I didn’t have to pick these stocks. I didn’t have to research the Tokyo Stock Exchange. I just owned the whole world, and Japan came along for the ride.

6. The Lesson Most Investors Get Wrong

Japan’s story is a perfect case study in why trying to pick winning countries is a fool’s errand.

Let me paint two scenarios.

Investor A reads about Japan’s lost decades in 2010 and decides: “Japan is dead money. I’m going to avoid it and put everything in US stocks.” For a while, this looks brilliant. US stocks crush it from 2010 to 2023. Investor A feels like a genius.

Investor B buys XEQT (or a similar global fund) and holds it. They own a small slice of Japan alongside everything else. They don’t think about Japan at all.

Here’s the twist: from 2023 to 2025, Japan was one of the best-performing major markets in the world. The Nikkei gained over 50% in roughly 18 months. Investor A missed it entirely. Investor B captured it automatically.

But the real lesson isn’t about Japan specifically. It’s this: you can’t predict which country will lead next.

• In the 1980s, it was Japan.
• In the 1990s, it was the US (dot-com boom).
• In the 2000s, it was emerging markets (especially the BRICs).
• In the 2010s, it was the US again (tech giants).
• In the 2020s, Japan, India, and Europe have all had major runs.

If you’d tried to time these rotations, you would have needed to be right not once, but repeatedly — knowing when to get in AND when to get out. The track record of professional investors doing this successfully is, to put it charitably, poor.

XEQT’s approach is different. It says: “I don’t know which country will win next, so I’ll own them all in proportion to their market value.” It’s the humble approach. And historically, humility has been a better strategy than prediction.

7. But What If I’d Just Bought a Japan ETF Instead?

Fair question. If Japan had such a great run, wouldn’t you have been better off buying a dedicated Japan ETF like EWJ (iShares MSCI Japan ETF) instead of XEQT?

Let’s think this through.

The timing problem

To outperform XEQT with a Japan bet, you needed to:

1. Know that Japan was about to stage a historic comeback (when most experts had written it off)
2. Buy before the rally started (not after the headlines)
3. Hold through the volatility (the Nikkei had several gut-wrenching drops along the way, including a 12% single-day crash in August 2024)
4. Know when to sell or rebalance back out

Most people who chase hot countries do the opposite — they buy after the big gains (because that’s when the headlines appear) and sell during the drops (because they panic). This is the performance-chasing trap, and it destroys returns.

The concentration risk

Putting a large chunk of your portfolio in a single country means you’re also taking on that country’s specific risks:

• Currency risk: The yen’s movements can dramatically affect your returns in Canadian dollars
• Demographic risk: Japan’s population is shrinking and aging rapidly
• Political risk: Policy changes, trade disputes, geopolitical tensions
• Earthquake and disaster risk: Japan sits on the Ring of Fire

With XEQT, Japan is a meaningful but measured allocation. If Japan stumbles again, it’s a 4-5% headwind, not a portfolio-destroying event.

The rebalancing benefit

Here’s something subtle that most people miss. When Japan rallies and its weight in global indices increases, XEQT’s underlying ETFs naturally capture that growth. But XEQT also rebalances across its four underlying funds, which means if international stocks (including Japan) get ahead of their target allocation, some of those gains get trimmed and redeployed into lagging areas. This is systematic buy-low, sell-high — and it happens without you doing a thing.

8. What Japan’s 35-Year Recovery Teaches Us About Patience

I think the Japan story is one of the most important parables in investing, and it cuts both ways.

The cautionary tale: If you’d put all your money in Japanese stocks at the 1989 peak, you would have waited 34 years just to get back to break-even. This is the strongest argument against concentrating your portfolio in any single country — yes, even the United States, which feels invincible right now but was in a similar position of global dominance as Japan was in 1989.

The recovery tale: If you’d written Japan off as permanently broken — as many investors did — you would have missed one of the best rallies of the 2020s. Markets have a stubborn tendency to recover when no one is watching.

The diversification tale: If you’d held a globally diversified portfolio through all of it, you would have had a small position in Japan the whole time. You would have participated in the decline (slightly dragging down your returns) but also participated fully in the recovery. And because Japan was just one piece of a broader portfolio, neither the pain nor the gain would have been extreme. That’s the whole point.

The median XEQT investor didn’t lose sleep over Japan’s lost decades. They didn’t celebrate the Nikkei breaking its all-time high either. They probably didn’t even notice. And that’s beautiful. The best investing experiences are the boring ones.

9. Could Japan’s Recovery Continue? What the Bulls and Bears Say

I’m not in the business of making predictions — that’s kind of the whole thesis of this blog. But I think it’s worth understanding the arguments on both sides.

The bull case for Japan

• Corporate reforms are still in early innings. Many Japanese companies are still trading below book value and have barely started returning capital to shareholders. There’s a long runway for improvement.
• The yen is cheap. If it stays weak, exporters keep benefiting. If it strengthens, foreign investors see currency gains on their Japanese holdings.
• Semiconductor tailwinds. Japan is investing heavily in domestic chip manufacturing. TSMC is building a factory in Kumamoto. Tokyo Electron and other Japanese equipment makers are critical to the AI boom.
• Buffett keeps buying. As of early 2026, Berkshire Hathaway continues to add to its Japanese positions.
• Valuations are still reasonable. Japanese stocks trade at lower price-to-earnings ratios than US stocks, despite improving fundamentals.

The bear case for Japan

• Demographics are brutal. Japan’s population is shrinking by several hundred thousand people per year. The working-age population is declining even faster. This is a structural headwind that no amount of corporate reform can fully offset.
• China tensions. Japan’s proximity to China and its involvement in semiconductor export controls creates geopolitical risk.
• Deflation could return. While Japan has finally seen some inflation, there’s no guarantee it sticks. A return to deflation would hurt corporate earnings and stock valuations.
• The easy gains may be done. The “Japan is broken” narrative kept valuations depressed for years. Now that the story has flipped, some of that re-rating has already happened.

Here’s my take: I don’t know which side is right, and I don’t need to. XEQT owns Japan in proportion to its market value. If Japan keeps rallying, my allocation will naturally grow. If it stalls, my allocation stays manageable. Either way, I’m not making a bet — I’m owning the world.

10. Japan vs. the US: An Uncomfortable Parallel

This section might make some people uncomfortable, and that’s precisely why I think it’s important.

In 1989, the arguments for why Japan would dominate forever sounded eerily similar to the arguments for US dominance today:

I’m not saying the US is going to crash like Japan did. The US economy has structural advantages that 1989 Japan didn’t — immigration, entrepreneurial culture, the world’s reserve currency, massive energy resources.

But I am saying that no country stays on top forever, and the investors who got burned worst in Japan were the ones who assumed it would. The whole point of global diversification is to protect yourself from the possibility that the current leader stumbles, while still participating fully if it doesn’t.

XEQT gives you roughly 45% US exposure — so you’re still heavily invested in American companies. But you’re also hedged with meaningful positions in Japan, Europe, Canada, and emerging markets. That balance is the insurance policy.

11. How to Think About Japan in Your XEQT Portfolio

So what should you actually do with all of this information? Here’s my framework:

If you own XEQT: do nothing. Seriously. Japan is already in your portfolio at a market-cap-appropriate weight. It will grow if Japan keeps performing and shrink if it doesn’t. This is the system working exactly as designed.

If you’re tempted to add a Japan ETF on top of XEQT: I’d push back on that. You’re essentially saying you know better than the global market about how much Japan should be worth. Maybe you do — but the evidence suggests that most people who make country-level bets regret them. If you really want extra Japan exposure, keep it small (maybe 2-3% of your portfolio) and understand you’re making an active bet.

If you don’t own XEQT yet: Japan’s recovery is just one more reason why a globally diversified, all-in-one ETF makes sense. You don’t need to follow Japanese corporate governance reforms. You don’t need to have an opinion on the yen. You don’t need to know what the Nikkei 225 is. You just need to own the whole world and let the market sort it out.

The beauty of XEQT is that it gives you exposure to stories you didn’t even know were happening — Japan’s renaissance, India’s tech boom, Europe’s defense spending surge — without requiring you to be an expert in any of them.

12. Final Thoughts: The Recovery You Didn’t Have to Predict

Every few years, a country or region stages a surprising comeback that makes headlines around the world. Japan’s recovery from its 35-year bear market is one of the most dramatic examples in financial history. And the investors who benefited most weren’t the ones who predicted it — they were the ones who owned everything and waited.

That’s the philosophy behind XEQT. It’s not about being clever. It’s not about reading tea leaves or following Warren Buffett into Japanese trading houses. It’s about building a portfolio that captures growth wherever it happens, rebalances itself automatically, and lets you get on with your life.

I didn’t predict Japan’s comeback. I didn’t need to. I just kept buying XEQT, and the world’s third-largest stock market took care of itself inside my portfolio.

If you’re a Canadian investor looking for a simple, one-fund solution that gives you exposure to Japan, the US, Canada, Europe, and dozens of other markets — all with automatic rebalancing and no trading decisions required — XEQT is hard to beat.

The next great market recovery is already brewing somewhere. You probably won’t see it coming. But if you own XEQT, you’ll own a piece of it when it arrives.

Related Reading

• What Is XEQT? A Complete Guide to Canada’s Most Popular All-in-One ETF
• XEQT’s Geographic Diversification: Why Your Money Spans 49 Countries
• XEQT’s Emerging Market Exposure Explained
• The Four ETFs Inside XEQT Explained
• How XEQT’s Automatic Rebalancing Works
• Deglobalization and XEQT: Why Global Diversification Still Matters