Is this really Japan's year to return to the light?

The recovery has been a long time coming, so what's different this time, asks Emma Dunkley

It may be known as the land of the rising sun, but Japan has seen many false dawns for investors over the past two "lost" decades. Yet now could be the time to buy into Japan, as the election of a new prime minister marks a potentially massive change in fortune for the stagnating economy.

There has already been a turnaround over the past three months, as funds investing in Japanese equities are up nearly 15 per cent on average and are among the best performing across all regions and asset classes. With the country being home to lots of world-class companies that are looking very cheap, it would seem an opportune moment to buy.

But those who have seen such signs of promise before remain wary of the notion that the country can actually overcome its problems and deliver for investors. So is it time to get excited about Japan in the expectation that it can finally offer compelling returns, or does the old caution still apply?

"Investing in Japanese equities has been a fruitless foray into an unforgiving frontier in the past two decades," says Tom Becket at the investment manager PSigma.

"You get less grief for investing in the likes of Bangladesh and Mongolia than you do for committing capital to Japan."

However, Mr Becket believes new policies at the Bank of Japan could spell positive times ahead for equities. He says companies in the country will see profit growth above 35 per cent this year, although he believes Japanese equities are not priced for such exuberance – meaning these shares are attractively cheap and ripe for the taking.

And it's likely the uptick in Japanese shares over the past few months will continue through to the summer at least. Andrew Rose, a Japan fund manager at Schroders, says: "In the coming months, Japanese shares will sustain the rally, because there's another election in July.

"Prime Minister Shinzo Abe is going to do all in his power to create a feelgood factor – so there will be a lot of positive news thrown at the economy between now and then."

But can Japan continue to rise beyond that point? "The chances of meaningful change are better than they have been for a long time," says Mr Rose. "They are better because of the political will and the likelihood of Abe staying in power for a number of years. It will mean he can take measures to address the country's problems and boost underlying growth."

One major pivotal factor that could really spur share prices is the authorities' strategy to weaken the currency. The yen has already fallen sharply since November, to its weakest level against the dollar in almost three years. "In effect, the yen should halve against the dollar from the 77 yen that we saw last year," says Mr Becket. "Even if that were to partially happen, Japanese equities should boom."

Weakening the yen will also boost exports, create extra growth and bolster tax revenues, all of which will help to reduce the country's huge deficit, says Brian Dennehy at Fund Expert. "We expect a long way to go on this because it is a huge problem they are tackling."

With prospects for the country finally looking brighter, you might be tempted to invest some of your cash in Japan. Ben Willis at Whitechurch Securities says funds run by a manager are the best route, as opposed to lower-cost index trackers. "Active managers are not hostages to fortune and can select the areas of the market that they believe offer the best opportunities," he says.

Mr Willis recommends the Jupiter Japan Income fund, managed by Simon Somerville, which invests in dividend-paying companies. He says it is worth seeking funds that offer to protect you from currency exposure, so you don't have to worry about the yen's movements.

But you might also be surprised to learn that a number of other managers who don't run Japan-specific funds have been investing in Japanese equities. Alastair Mundy, the manager of the Investec Cautious Managed fund, has found a lot of value in the market and has recently built up his holdings in Japanese shares to around 10 per cent, says Juliet Schooling Latter at Chelsea Financial Services.

"You're much better off in an actively managed fund," she says. "There are some great ones that can add a lot of value, whereas the index funds will always have a bias towards the large companies and not necessarily those in sectors that might benefit from, say, the weakening yen."

Remember that although this time could be different for Japan, it's a case of whether the investment is right for you. Philippa Gee, who runs her own wealth management firm, says: "I just feel that there are enough risks already in markets generally; that you do not need to increase that risk unnecessarily. For many, using a fund manager to control how much exposure you have to Japan might be best."

Ultimately, Miss Gee highlights that investing in Japan is a bet and that if you win, you could really benefit from the move – but you have to decide if it is a risk worth taking.

Emma Dunkley is a reporter at

Suggested Topics
Have you tried new the Independent Digital Edition apps?
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SQL Report Analyst (SSRS, CA, SQL 2012)

£30000 - £38500 Per Annum + 25 days holiday, pension, subsidised restaurant: C...

Application Support Analyst (SQL, Incident Management, SLAs)

£34000 - £37000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Embedded Software / Firmware Engineer

£40000 - £45000 per annum + Pension, Holiday, Flexi-time: Progressive Recruitm...

Developer - WinForms, C#

£280 - £320 per day: Progressive Recruitment: C#, WinForms, Desktop Developmen...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform