After one of the strongest bull markets in its history, Japanese equities have suffered a sharp correction – the Nikkei 225 has fallen by around 10,000 points ( -15% approx) from its June 2026 peak in little over a month. The sell-off has prompted investors to question whether Japan’s long-awaited renaissance is stalling or whether this is simply a healthy correction within a longer-term bull market.
Fund managers increasingly talk of tides turning in Japan, where investors face an evolved landscape. But crucially, they see scope for robust dividend yields and high-quality companies fuelling tech progress, and a diversified approach to energy.
Nicola Takada Wood presents AVI Japan Opportunity Trust, Sharesify Webinar 24 June 2026
For UK investors, investment trusts remain one of the most attractive ways to gain diversified exposure to Japan, particularly as many continue to trade at meaningful discounts to net asset value (NAV).
Largest UK investment trusts with Japanese exposure
| Investment trust | Estimated Japan exposure* | Investment objective | Best suited for |
| Baillie Gifford Japan | ~98-100% | Long-term growth through innovative Japanese companies | Growth investors with high risk tolerance |
| JPMorgan Japanese | ~95-100% | Capital growth across large and mid-cap Japanese companies | Core Japan allocation |
| AVI Japan Opportunity | ~100% | Unlock value through activist investing in undervalued companies | Value investors |
| Baillie Gifford Shin Nippon | ~100% | Japanese smaller companies | Aggressive long-term investors |
| Schroder Japan Trust | ~95-100% | Broad Japanese equity exposure with value bias | Investors seeking diversified Japan exposure |
| CC Japan Income & Growth | ~95-100% | Dividend income plus capital appreciation | Income-focused investors |
| JPMorgan Asian Investment Trust | ~18-25% | Asian equities including Japan | Diversified Asia exposure |
| Pacific Assets Trust | ~12-18% | Sustainable Asian companies | Growth and ESG investors |
| Scottish Mortgage | ~7-10% | Global growth companies | Investors wanting modest Japan exposure alongside global technology |
*Portfolio allocations are approximate and change over time.
Why has Japan fallen?
The recent decline has been driven by several factors:
- Profit-taking after extraordinary gains.
- Rising Japanese government bond yields.
- Bank of Japan policy uncertainty.
- Weakness in the yen.
- Concerns over Japan’s expanding fiscal spending plans.
- Investors rotating away from AI-related winners following exceptional performance.
Many of the companies that led the rally—particularly semiconductor equipment manufacturers and AI beneficiaries—have seen some of the largest pullbacks.
What fund managers are saying
The bullish view
Most long-term Japan specialists remain constructive.
Positive arguments include:
- Corporate governance reforms continue to improve shareholder returns.
- Record share buybacks.
- Rising dividends.
- Companies hold significant excess cash.
- Valuations remain well below US equities.
- Inflation has finally returned after decades of deflation.
- Wage growth is supporting domestic demand.
Several managers argue Japan is experiencing structural rather than cyclical change, with improving returns on equity and better capital allocation expected to support earnings over many years.
Masaki Taketsume of Schroder Japan Trust (LON:SJG) recently explained to the IC why, in his view, Japan’s blend of bottom-up stock selection options and strong corporate reforms are helping create a rare mix of growth and income opportunities for investors.
From deflation to dividend powerhouse: rethinking Japan’s role – AIC
The cautious view
Sceptics highlight:
- Yen weakness reducing sterling returns.
- Higher interest rates creating uncertainty.
- Government debt exceeding 200% of GDP.
- AI enthusiasm becoming concentrated in relatively few stocks.
- Exporters vulnerable if global growth slows.
Some analysts believe much of the easy money has already been made after the exceptional rally since 2023.
Performance over recent years
Japanese trusts have generally delivered excellent long-term returns.
- AVI Japan Opportunity has been among the strongest performers thanks to activist investing and corporate governance improvements.
- JPMorgan Japanese has generated strong, consistent returns from high-quality companies.
- Baillie Gifford Japan benefited significantly from growth stocks during the rally but has also been more volatile.
- Baillie Gifford Shin Nippon enjoyed exceptional gains during the small-cap recovery but remains the most volatile option.
Most trusts have comfortably outperformed their long-term averages over the past five years, although 2026 has been considerably more volatile.
NAV discounts in 2026
One positive development has been improving discount control.
During 2022-24, many Japan trusts traded on double-digit discounts.
In 2026:
- JPMorgan Japanese has actively bought back shares, helping narrow its discount from around 10.5% to around 9%, although volatility has persisted.
- AVI Japan Opportunity has generally traded on a narrower discount as investors have rewarded its activist approach.
- Baillie Gifford Japan’s discount has fluctuated alongside growth stock sentiment.
- Shin Nippon continues to trade on one of the wider discounts because of the higher volatility of Japanese smaller companies.
Overall, discounts remain wider than many investors would expect given Japan’s improving fundamentals, potentially offering an additional source of returns if sentiment improves.
Risks
Investors should consider:
- Currency risk from sterling versus yen.
- Higher Japanese interest rates.
- Geopolitical tensions across Asia.
- AI-related valuation risks.
- Export dependence.
- Continued market volatility.
Japanese investment trusts also employ gearing, which can amplify both gains and losses.
Opportunities
Despite recent weakness, Japan retains several structural strengths:
- Continued corporate governance reform.
- Shareholder-friendly capital allocation.
- Strong balance sheets.
- Global leadership in automation, robotics and semiconductor equipment.
- Attractive valuations compared with the US.
- Potential for further dividend growth.
Many professional investors believe these structural changes are only partly reflected in valuations.
Which trust suits which investor?
| Investor type | Trust |
| First-time Japan investor | JPMorgan Japanese |
| Long-term growth | Baillie Gifford Japan |
| Deep value | AVI Japan Opportunity |
| Small-cap growth | Baillie Gifford Shin Nippon |
| Income investor | CC Japan Income & Growth |
| Diversified Asia exposure | Schroder Japan Trust |
Investor verdict
The Nikkei 225 has fallen by around 10,000 points from its June 2026 peak and this sharp correction has undoubtedly shaken confidence, but it has done little to alter the long-term structural case for Japanese equities. Corporate governance reforms, improving shareholder returns, stronger wage growth and healthier inflation dynamics continue to differentiate Japan from the deflationary economy investors knew for much of the past three decades.
For UK investors, the recent pullback may offer a more attractive entry point than was available at June’s highs. While currency movements and rising bond yields remain meaningful risks, many Japan-focused investment trusts still trade at discounts to NAV despite favourable long-term fundamentals. For investors willing to accept periods of volatility, the combination of discounted trust valuations and a cheaper Japanese equity market could prove an appealing opportunity over the next 5-10 years.
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