There are now compelling reasons for investment in Japanese equities, according to Chris Taylor, fund manager and head of research at Neptune Investment Management. After three years of pessimism, Neptune has turned bullish on the Japanese market in the belief that Japan is best placed to exploit coming economic trends.

In Mr Taylor’s view, the global economic recovery will be led by the BRIC countries, with those in the Organisation for Economic Co-operation and Development making a weaker than usual contribution as their consumer activity will remain constrained by their levels of standing debt. Japanese companies generally have a higher exposure to non-OECD countries, and the Yen’s weakness provides them with a further competitive edge, he notes.

The fact that Japan went through a prolonged downturn quite recently also stands the county’s companies in good stead, Mr Taylor argues. In his view, companies must lower their breakeven points and/or improve their throughput volumes in order for earnings to recover, and here the experience of downsizing that Japanese corporate managements have will prove key.

“Given Japan’s downturn throughout the 1990s, it therefore comes as no surprise that across many sectors, Japanese firms have been the most active in restructuring, cutting deeper and faster than their foreign competitors,” Mr Taylor said.

A final point in Mr Taylor’s investment case for Japan is the fact that the country’s banks have adequate financial reserves to see them through another 20 – 25 per cent fall in US house prices from the end of 2008.

In light of these factors Mr Taylor has moved the Neptune Japan Opportunities fund to a fully invested position with a substantial overweight position in both multinationals and financials companies.  The fund has also hedged out the bulk of its Yen currency exposure to avoid capital losing its equity gains through currency depreciation.