How to Buy Japanese Stocks: A Complete Guide for Foreign Investors

By Kenichi Ogura

For most of the last thirty years, Japan was the market that global investors loved to talk about but rarely bought. The story was always the same. Prices looked cheap. Growth looked weak. Capital remained stagnant. Many called it a value trap.

That story is changing. And if you are an investor sitting in New York, London, Toronto, or Sydney, it is worth paying attention to what is happening in Tokyo right now.

A Country Waking Up From Deflation

Let us start with the biggest shift. For about thirty years, Japan lived under deflation. Prices kept falling. When prices keep falling, people stop spending because they expect things to be even cheaper next month. Companies then sell less. They pay workers less. Workers spend less. The cycle becomes self-perpetuating.

Compare that to the United States, where wages climbed steadily from 1990 onward. In Japan, the wage line on the chart stayed almost flat for decades.

That pattern has finally broken. Global inflation reached Japan, and labor unions pushed hard for raises. Nominal wages are now rising. The transition is not finished. Real wages, meaning what your paycheck can actually buy after price increases, are still working their way back. But the direction has changed, and the change is real. Companies can finally raise prices without losing customers. They earn more, hire more, and invest more. The old vicious cycle is slowly being replaced by a virtuous one.

This is the kind of change that does not happen often. And it is the foundation of everything else we will talk about.

The Tokyo Stock Exchange Changes the Rules

The second big change came from the Tokyo Stock Exchange itself. In April 2022, the exchange reorganized its markets into three clear groups: Prime, Standard, and Growth. Companies listed on the Prime market now face strict rules. At least one third of their board members must be independent outside directors. They must also disclose key information in English so foreign investors can actually read it. That English disclosure requirement was rolled out in stages and became a full, simultaneous obligation for earnings and timely reports in April 2025.

Then in March 2023, the exchange did something unusual. It directly told all listed companies to start paying attention to their cost of capital and their share price. Put simply, the message was clear: if your company trades below its book value, you need to explain why and fix it.

A large share of TOPIX companies still trade below book value, currently around one third by recent counts. In the S&P 500, only a small fraction of companies are in that situation. So the gap is still wide, and the pressure on Japanese management is real.

The response has been strong. Companies are buying back their own shares at record levels. They are raising dividends. They are selling off underperforming divisions. Management teams are now openly targeting a return on equity of eight percent or higher. These are exactly the kinds of moves that lift share prices over time.

The Cheap Yen Adds a Discount

There is one more piece. The Japanese yen has weakened sharply against the dollar in recent years. For Japanese exporters, this is good news. Their products become cheaper abroad, and the dollars they earn overseas turn into more yen back home.

For you, the foreign investor, the weak yen effectively functions as a discount coupon. Your dollars or pounds or euros buy more Japanese assets than they did a few years ago. You are walking into a sale.

The Catch: The 100-Share Rule

So far this sounds like a clear opportunity. But Japan has one strange rule that trips up most foreign investors. You cannot buy just one share of a typical Japanese stock. You have to buy 100 at a time. This is known as the unit share system (or board lot system), and every order on the Tokyo exchange must be in multiples of 100.

For a big pension fund, this is nothing. For a regular person trying to build a portfolio, it is a wall. The average minimum investment to buy one lot on the Prime market is around 250,000 yen, or roughly 1,700 dollars. Compare that to the S&P 500, where the average minimum is about 32,000 yen because you can buy a single share.

Some Japanese stocks are far worse. To own one lot of Fast Retailing, the company behind Uniqlo, you now need around 7 million yen. Keyence, the factory automation giant, also requires several million yen for a single lot. That is one stock. Most people cannot tie up that kind of money in a single position.

The exchange knows this is a problem. It has been pushing companies to split their shares so the entry price falls below 100,000 yen. Toyota and many others have done so. But the 100-share rule itself remains.

In theory, you can buy fewer than 100 shares, called odd lots. In practice, it is painful. Even Interactive Brokers, which offers smooth fractional trading for US and European stocks, does not support online odd-lot orders for Japanese stocks. You have to call their trade desk during Japanese market hours and place the order by voice. That is not a viable solution.

So How Do You Actually Buy?

There are four practical paths, and the right one depends on how much money you have and how active you want to be.

Path One: Buy a Japan ETF Listed at Home

This is the simplest and cheapest path. An exchange-traded fund that holds Japanese stocks trades on your local market in your local currency. You buy it the same way you buy any US or European stock. No 100-share rule. No currency exchange fees. No Japanese paperwork.

If you live in the United States, you can buy these through Fidelity, Schwab, Robinhood, or any standard broker, usually with zero commission.

The choice of fund matters more than people think, because fees compound over time. The most famous Japan ETF is the iShares MSCI Japan ETF, ticker EWJ. It has been around for a long time and holds a lot of assets. But its expense ratio is 0.49 percent per year.

A much cheaper alternative is the Franklin FTSE Japan ETF, ticker FLJP. It gives you similar exposure to Japanese large and mid-cap stocks for only 0.09 percent per year. That gap of 0.40 percent may sound small. Over twenty or thirty years, it is not small at all. JPMorgan's BetaBuilders Japan ETF, ticker BBJP, is another low-cost option.

If you are worried about the weak yen eating your returns, there is a different tool. The WisdomTree Japan Hedged Equity Fund, ticker DXJ, hedges the currency for you. It also tilts the portfolio toward exporters, companies that earn most of their money outside Japan. Think Toyota, think Mitsubishi UFJ. When the yen falls and the stock market rises, DXJ tends to leave EWJ behind. Its expense ratio is 0.48 percent, higher than FLJP, but the currency protection can be worth it.

Path Two: Buy ADRs of Famous Japanese Companies

If you want to own specific companies like Sony, Toyota, or Honda, the easiest way is through an American Depositary Receipt, or ADR.

Here is how it works. A US bank holds the actual Japanese shares in trust. It then issues a US-listed certificate that represents those shares. You buy the certificate on the NYSE or NASDAQ, in dollars, like any normal US stock. You can buy one share, or even a fraction of one if your broker allows fractional trading.

The trade-off is that not every Japanese company has an ADR. The biggest names do, but small and mid-cap companies usually do not. So your menu is shorter.

Path Three: Buy a Mutual Fund

If you invest through a retirement account like a 401(k) or IRA, a Japan-focused mutual fund may be the cleanest fit. Hennessy offers Japan funds. Fidelity has the Fidelity SAI Japan Stock Index Fund. The manager handles every detail. You just buy the fund in dollars.

Active funds may beat the index in good years, but they also charge higher fees. Over time those fees add up. So watch the expense ratio carefully.

Path Four: Buy Directly Through a Global Broker

If you want to invest in smaller Japanese companies, growth-stage names, or anything without an ADR, you need direct access to the Tokyo exchange. A global broker like Interactive Brokers, Fidelity, or Charles Schwab can provide that.

But here you run into the hidden cost that hurts foreign investors the most: the currency conversion fee.

The Quiet Tax Called the FX Markup

When you change dollars into yen to buy a Japanese stock, your broker adds a markup on top of the real exchange rate. This is not advertised. It is not a line item in big letters. But it is real money.

At Fidelity, currency conversions under 100,000 dollars carry a flat one percent markup. So if you convert 10,000 dollars into yen, you lose 100 dollars on the way in. Then you lose another one percent on the way out. That is two percent of your money gone before the stock has done anything.

Charles Schwab is even more punishing for direct Japanese stock trades. You pay a minimum of 50 dollars as a foreign transaction fee, plus 2,000 yen, plus 0.1 percent of the trade value, plus the same one percent FX markup. For a retail investor, this is prohibitively expensive.

Interactive Brokers stands out as the clear winner here. Its commission for Japanese stocks under the fixed plan is 0.08 percent of the trade, with a minimum of 80 yen. For currency conversion, it charges only 0.002 percent, with a minimum of 2 dollars. So that same 10,000-dollar conversion that costs you 100 dollars at Fidelity costs you 2 dollars at IBKR. The difference is enormous.

The only catch, as we mentioned, is that IBKR still cannot help you trade odd lots online. The 100-share rule applies to them too.

Taxes: The Often-Overlooked Detail

Now let us talk about something most articles skip. Taxes can quietly take a big chunk of your returns, and you can avoid most of that pain with a little paperwork.

Capital gains are the easy part. If you do not have a permanent business presence in Japan, Japan does not tax your capital gains on stocks. You just report them in your home country and pay tax there. The only exception is for very large stakeholders who control 25 percent of a company and sell large blocks. That does not apply to regular investors.

Dividends are where it gets interesting. Japan withholds tax on dividends paid to foreign investors. The default rate under Japanese law is 15.315 percent. But Japan has tax treaties with more than 150 countries, and these treaties usually lower the rate.

For US residents, the treaty rate is 10 percent. For UK residents, also 10 percent. For Canadians, it stays at 15 percent. If your country has no treaty with Japan, you pay the full 15.315 percent, or 20.42 percent for certain types of investments.

To get the lower rate, you need to ensure your tax status is properly documented with your broker. For US brokers, US residents typically do this by keeping an up-to-date Form W-9 on file. Without it, you might end up paying full Japanese tax and full home-country tax on the same dividend. That is called double taxation, and it is exactly what the treaty is designed to prevent.

If you invest through ADRs or US-listed Japan ETFs like FLJP or DXJ, the bank or fund usually handles this for you behind the scenes. You do not need to talk to the Japanese tax office directly.

Putting It All Together

Japan today is not the Japan of 2010. The country has stepped out of long-running deflation, even if the recovery in real wages is still a work in progress. Companies are being pushed to use their capital better, and they are responding with buybacks and higher dividends. The weak yen offers foreign buyers a discount on top of valuations that are already low by global standards.

If you are new to Japan or working with a smaller amount of money, start with a low-cost US-listed ETF like FLJP, or use DXJ if you want to hedge the yen. If you want famous Japanese names, buy their ADRs. If you have more capital and want to reach into smaller stocks on the Tokyo exchange, Interactive Brokers is the only sensible direct route, because its FX markup is a tiny fraction of what other brokers charge.

Whatever path you choose, file your tax forms. The treaty rates exist for a reason. Use them.

Japan's reforms are still in the early innings. For patient foreign investors who pick the right vehicle and the right broker, this market may turn out to be one of the more rewarding stories of the decade.