"Thanks for the great service! I am very interested in investing in Japan.

"I understand that Japan is not part of the fullermoney scene, it is not a global GDP growth center. With its aging population, high public debt (200% of GDP), on and off deflation, 1st quarter GDP growth of -3.5% (caused by the earthquake), all seem to be stacked against this island nation. In IMF report of World Economy Outlook, IMF projected Japan's 2011 GDP growth at -0.7% and 2012 at 2.9%. Considering Japan 2nd quarter GDP growth likely to be negative, IMF's 2011 projection on Japanese GDP growth implies that Japanese economic activities will pick up significantly to erase a large portion of the negative growth incurred in the first half of 2011. Looking at Nikkei, it appears to me that the index is at the latter stage of mean
reversion. My question for you is this: Is there a chance that we will see a repeat of Japanese bull market of 2003-2004 and 2005-2006 in 2011 or 2012?

David Fuller's view Thanks for your kind words and an interesting question.

Regarding Japan and by way of clarification, at Fullermoney we regard it as a fascinating enigma. So we follow it closely but Japan is not one of our secular investment themes.

Waiting for bull markets in Japan can feel like 'Waiting for Godot'. The Nikkei currently looks like a base formation extension in perpetuity. At least it has edged back above its MA. We will certainly see a replay of 2003-2004 and 2005-2006 but for timing I will mention four pre or at least simultaneous conditions.

1) I would like to see Japanese 10-yr bond yields turn upwards, as you saw previously in this overlay chart; 2) I would like to see a weaker yen, illustrated here with the USD rising against JPY; 3) I would expect to see the Second Section (TSE2) leading to the upside; 4) I would expect to see Japanese banks recovering.

Currently, JGB yields are too low, signalling deflation fears; the yen is too strong; the Second Section is rallying but not yet to the extent that it is convincing; Japanese banks are still in an overall downward trend but at least they have rallied over the last four weeks.

My conclusion is that we are not there yet in terms of another bull run but Japan is worth watching because of its Book Value attractions which other analysts often mention. I suspect that foreign (non Japanese) investors will buy Japan when the strength of other stock markets gives them the confidence to bargain hunt in a laggard.