Japan is having a moment. The MSCI Japan benchmark has delivered an unhedged return of about 13% year to date through late May, while the currency-hedged version has tacked on closer to 18%. That gap is the reason any investor building international developed exposure needs to consider three funds: the iShares MSCI Japan ETF (NYSEARCA:EWJ), the WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ), and the SPDR EURO STOXX 50 ETF (NYSEARCA:FEZ).
These three rise to the top for a simple reason. Each solves a specific problem an American investor faces when allocating outside the United States: how to own Japan when you have a view on the yen, and how to own Europe without the dilution of UK, Swiss, and Scandinavian names that show up in broader EAFE funds. J.P. Morgan’s 2026 outlook calls out “another strong year for international equities, especially… the value style in Europe and Japan” as structural reforms and shareholder-friendly policies overseas narrow the earnings gap with the U.S.
The Japan setup nobody wants to ignore
Japanese equities have been driven by three forces in 2026: corporate governance reform pushing companies to unwind cross-shareholdings and return cash to investors, a Bank of Japan that has stayed cautious about tightening, and a yen sitting near 160 to the dollar. That last piece splits Japan exposure into two very different investments. If you own Japanese stocks in yen and the yen weakens against the dollar, you give back returns when you translate them home. If you hedge that currency exposure, you keep them.
EWJ: the default way to own Japan
EWJ is the broad, unhedged workhorse. It tracks the MSCI Japan Index, manages roughly $21 billion in net assets, and charges a 0.49% expense ratio. The fund’s top names include Toyota Motor at about 3.5% of assets, Mitsubishi UFJ Financial Group near 4%, SoftBank near 3.4%, Hitachi, Sony Group, and Advantest. Three of the ten largest holdings are Japanese megabanks, giving EWJ a meaningful financials tilt that benefits when domestic interest rates rise.
The investment logic is straightforward. You want Japan exposure, you want it cheap and liquid, and you do not want to take a view on the currency. Over the past year EWJ has returned about 29% in dollar terms even with the yen drifting lower, because Japanese stocks rose enough in local currency to absorb the translation hit. Over five years the fund is up roughly 53%. The tradeoff is visible: when the yen weakens sharply, unhedged investors leave money on the table.
DXJ: the same companies, without the yen drag
DXJ is the currency-hedged answer, and it is the most important fund on this list for investors with a view on the yen. WisdomTree built it around dividend-paying Japanese companies skewed toward exporters, the firms that benefit when a weak yen makes their products cheaper abroad. It overlays a currency hedge that strips out the yen-to-dollar move, capturing Japanese stock returns in local currency.
Over the past year, the gap between the two funds widens to about 53% for DXJ against about 29% for EWJ, and over five years the divergence is stark at roughly 172.9% for DXJ versus 32% for EWJ. Almost all of that excess return is the currency hedge doing its job while the yen weakened from the low 100s to the high 150s.
A currency hedge is not free. It costs something (the interest-rate differential between the two currencies) and it cuts both ways. If the yen strengthens against the dollar, DXJ holders give up the translation tailwind that EWJ holders capture. Own DXJ when you think the BOJ stays dovish and the yen stays weak. Own EWJ when you think the yen has bottomed or when you simply do not want to make a currency call.
DXJ’s tilt toward exporters makes it structurally more sensitive to global trade and manufacturing cycles than EWJ, which carries heavier weight in domestic-facing banks and utilities. In a global growth scare, DXJ tends to fall harder.
FEZ: blue-chip Eurozone without the noise
For the European side, FEZ is the sharpest instrument. It tracks the EURO STOXX 50, which holds the 50 largest blue-chip companies across the Eurozone and explicitly excludes the UK, Switzerland, and Sweden. That matters because broader Europe funds dilute the Eurozone story with London-listed names and Swiss multinationals that move differently. FEZ charges 0.29% in expenses and pays a dividend yield of roughly 2.9%, more than double what a comparable U.S. large-cap fund pays.
The portfolio is concentrated by design. ASML alone is roughly 11% of assets, followed by TotalEnergies at 3.7%, Siemens at 4.6%, SAP at 3.64%, and Banco Santander at 3.61%. Geographically, France accounts for roughly 33% and Germany for 30%, with the Netherlands, Spain, and Italy filling out most of the rest. By sector, the fund leans into financials at 25%, industrials at 21%, and information technology at 15%, which is essentially a bet on European banks earning more from a steeper yield curve, on rearmament-fueled industrial growth, and on ASML’s monopoly in EUV lithography.
FEZ has returned about 4% year to date and roughly 14.8% over the past year. That trails both Japan funds, but the setup for 2026 is constructive. Franklin Templeton expects European equities to lead alongside emerging markets, driven by monetary easing from the ECB and fiscal stimulus tied to German defense and infrastructure spending. The tradeoff is concentration. Fifty stocks is not many, ASML is nearly a tenth of the fund, and a single bad quarter from a top holding shows up more than in a diversified pan-European product.
How to choose between them
The decision comes down to two questions. First, do you have a view on the yen? If you think the yen stays weak or weakens further, DXJ is the cleaner expression and the 2026 numbers prove it. If you think the yen has bottomed, or you simply do not want to make that call, EWJ gives you the same Japanese corporate-reform story without the hedging machinery. Owning both in roughly equal weights is a defensible option for investors who want Japan exposure but no currency bet either direction.
Second, do you want diluted developed-market exposure or a focused Eurozone bet? FEZ is the right fund if you specifically want the Eurozone megacaps benefiting from ECB easing, German fiscal expansion, and the AI capex cycle flowing through ASML and SAP. Investors who want broad Europe including the UK and Switzerland should look elsewhere. Pair FEZ with one of the Japan funds and you have a coherent international developed-market allocation that captures the two stories actually working in 2026.
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