Japanese equities have staged a powerful comeback over the past year, and U.S.-based investors are increasingly searching for efficient vehicles to capture that upside without taking on unnecessary currency risk. The WisdomTree Japan Hedged Equity ETF (DXJ), launched in 2006, has re-emerged as a prominent contender. With a one-year gain of nearly 54% and strong year-to-date performance, the fund sits at the intersection of smart beta strategy and currency hedging — a combination that has amplified returns in the current macro environment.

Smart Beta Meets Currency Hedging

Unlike traditional market-cap-weighted ETFs, DXJ follows a smart beta methodology. It tracks the WisdomTree Japan Hedged Equity Index, which selects Japanese dividend-paying exporters and systematically hedges exposure to fluctuations in the Japanese yen relative to the U.S. dollar.

This design has been particularly advantageous in recent years. While Japan’s corporate sector has benefited from structural reforms and improved profitability, the yen has remained volatile and relatively weak. For dollar-based investors, currency swings can dilute equity gains. DXJ’s hedging overlay aims to neutralize that drag, allowing performance to more directly reflect underlying stock returns rather than foreign exchange movements.

In an environment where central bank divergence — particularly between the Bank of Japan and the Federal Reserve — continues to influence currency markets, such hedging can serve as both a risk-management tool and a performance enhancer.

Performance, Risk and Cost Profile

DXJ manages approximately $6.47 billion in assets, placing it among the larger developed Asia-Pacific ETFs. Its expense ratio stands at 0.48%, broadly in line with peers in the smart beta category but notably higher than some traditional cap-weighted alternatives.

Performance metrics are compelling. The ETF has returned about 15.6% year-to-date and 53.77% over the past 12 months as of mid-February 2026. Over the trailing three years, the fund has exhibited a beta of 0.38 and a standard deviation of 19.86%, positioning it as a medium-risk allocation within international equities.

The portfolio holds roughly 434 securities, helping to mitigate company-specific risk. However, investors should be aware that sector and exporter concentration can increase sensitivity to global trade cycles. Major holdings include leading Japanese corporates such as Toyota Motor Corp. and Mitsubishi UFJ Financial Group, both deeply tied to global demand conditions.

How Does DXJ Compare to Alternatives?

Investors considering exposure to Japan also have lower-cost options such as JPMorgan BetaBuilders Japan ETF (BBJP), with a 0.19% expense ratio, and iShares MSCI Japan ETF (EWJ), charging 0.50%. BBJP and EWJ follow traditional market-cap-weighted approaches and do not hedge currency risk.

The choice between DXJ and these alternatives hinges on one critical macro question: will the yen remain weak? If currency volatility persists or the dollar stays firm, DXJ’s hedged structure could continue to outperform. Conversely, if the yen strengthens meaningfully, unhedged ETFs may capture additional upside that DXJ would forgo.

For Israeli and U.S. investors alike, the currency dimension is not merely academic — it materially influences international portfolio returns.

As Japan navigates corporate governance reforms, shifting monetary policy dynamics, and global trade uncertainties, DXJ offers a differentiated way to participate. The fund’s strength ultimately depends not only on equity fundamentals but also on the evolving currency landscape and global growth cycle.