“A few suggestions on cherry picking Japanese shares would be very interesting at this point."

Eoin Treacy's view Thank you for this suggestion. A substantial number of Japanese shares have experienced explosive breakouts in local currency terms over the last few months. This has been in response to the devaluation of the Yen which continues, albeit at a slower pace. This report from Daiwa containing pieces from a number of authors may be of interest. Here is a section:

The previous DPJ government emphasized consumer interests and wealth distribution policies such as expanding social security, rather than creating wealth (economic growth). In contrast, the new Abe administration launched in December 2012 focuses on businesses/economic growth. With economic recovery and end to deflation at the fore (so-called Abenomics), the government intends to pursue (1) aggressive monetary easing (subsequently achieving weaker yen), (2) increased public spending centering on social infrastructure, and (3) other measures to promote economic growth such as deregulation and opening up the country. Of these, we believe monetary easing is particularly important. The administration has persuaded the BOJ to adopt a 2% inflation target and introduced a system to check results of BOJ policy through the Council on Fiscal and Economic Policy. Looking at the upcoming appointment of a new BOJ governor and deputy governors (between late Feb, mid-Mar), we believe the government will move to appoint dovish candidates who will strive to achieve the inflation target. The new BOJ leaders will probably take aggressive easing measures (significant expansion of balance sheet) to achieve the target, as they would be blamed if the target were not met. We think such aggressive measures by the BOJ will prompt a rise in the expected inflation rate and a decline in the expected real interest rate, leading to yen depreciation and stock rallies. This would improve corporate and household balance sheets, leading to a turnaround in sentiment in both sectors (wealth effect). In addition, a weaker yen would help increase exports, resulting in greater domestic production/capex and improved corporate earnings. As a consequence, wages and household income would probably rise and consumer spending increase. Meanwhile, for increased public spending centered on social infrastructure, the government has compiled a 15-month budget aimed at boosting the economy. This is comprised of a large supplementary budget for FY12 amounting to Y13.1 trillion (Y10.3 tril excl. portion that does not lead to increased production) and an FY13 budget. Additionally, a basic economic policy to be announced around June will likely outline a medium/ long-term plan for reviving Japan's finances. The government will also likely move toward opening up the country, working to join the Trans-Pacific Strategic Economic Partnership (TPP), and expanding Japan's free trade agreements. The Abe administration aims to achieve the three policies in rapid succession by gaining market support for its speed and the ability to deliver

The export sector in particular has benefitted from the weakness of the Yen and continues to extend its rally. If a share has not yet responded to the devaluation there is probably a reason for its underperformance. My preference would be for companies in the electronics, automotive and consumer sectors. However most of these shares are quite overextended at present and becoming increasingly susceptible to mean reversion.