Sun rises once more on Japan

Spending 10 days in Japan gives one a good overview of what they call "Abenomics" and its impact, and that includes also being here for one of the biggest drops on the Japanese market in weeks.

It's only been months since Prime Minister Shinzo Abe detailed the three-pronged, or three-arrow, approach, which included a massive devaluing of the currency. Late last week the Prime Minister was getting ready to explain the policy to the G8 conference, which includes Germany's not-so-receptive Chancellor, Angela Merkel.

"They will discuss how to promote growth and jobs ... and here our Prime Minister, Mr Abe, will explain Abenomics, his policy to revive the Japanese economy," Yasushi Takase, deputy director-general of the Economic Affairs Bureau, Ministry of Foreign Affairs, told a foreign press briefing in Japan.

"This Abenomics has consisted of three prongs: there is broad monetary policy, second is the flexible fiscal policy, and the third one is a growth strategy that encourages private-sector investment."

The first two policies have been implemented and the third has just been approved by cabinet. Despite the recent market falls, and slight strengthening in the yen, Abenomics is still a big deal. "The first arrow is not really an arrow - it's a bazooka," says John Vail, chief global strategist, investment strategy group, at Nikko Asset Management.

"It's so big it's not going to allow Japan to reverse into what it used to be."

Japan might have had quantitative easing (QE) before, but where that was hesitant, this is assertive. Vail says the recent market falls in Japan are tied more to expectations of QE slowing in the US than Abe and Bank of Japan governor Haruhiko Kuroda's recent speeches.

Some observers believe Abenomics has been overhyped and the plans to buy government bonds, ETFs and REITs - which flood the money supply and send the value of the yen down - have only increased uncertainty.

Personally, Vail says he would be surprised if the market was lower at the end of the year than it is now.

"But some parts of the market were looking very, very frothy and now a lot of that froth is out and now fear is back within a spate of a few weeks," he says.

So what does this all mean for global equity investors? Yes, the outlook, particularly around the structural reforms in the third prong, is uncertain, but what is being done now hasn't been attempted in Japan for decades. And this time there is a vibe that maybe the combination of an active, popular prime minister and a country recovering from a massive natural disaster, might see consistent growth.

Economic growth is forecast to be between 1.4 per cent and 2 per cent for this calendar year, and that includes an upgrade in the World Bank's forecast, from 0.8 per cent to 1.4 per cent. According to Vail, investing in Japanese equities "now makes sense". For the Australian investor looking to invest in global shares, that means Japanese equities should now be an important consideration, where previously they were probably an afterthought.

David Potts is on leave .