Many see Japan as a value play. The real opportunity is its high number of quality companies (250+ with >40% gross margins) that were historically mismanaged. Ongoing governance reforms are now unlocking the potential of these high-margin franchises.

For 30 years, Japanese firms retained profits instead of returning capital, accumulating huge cash and asset piles on their balance sheets. Now, the Tokyo Stock Exchange is pushing for buybacks and dividends, creating a powerful catalyst for value realization that is independent of new earnings generation.

Analysis in Japan reveals a direct positive correlation between improved corporate governance metrics, such as board independence, and equity returns. This suggests that governance reforms across Asia are not just about compliance but are a tangible source of investment alpha for discerning investors.

While many focus on Japanese equities, CIO Jack Abel highlights the currency as the most compelling opportunity. On a purchasing power parity basis (like the Big Mac Index), the yen is so undervalued that a dollar buys 3-4 times more in Japan, signaling a significant potential for reversion.

For years, Japan was a value trap: cheap companies with poor governance hoarded cash. The game changed when Prime Minister Shinzo Abe introduced stewardship and governance codes, creating a top-down, government-backed catalyst for companies to finally improve capital allocation and unlock shareholder value.

The Tokyo Stock Exchange has issued an ultimatum to companies: get your price above book value or be delisted. This is forcing an end to centuries-old practices of corporate cross-ownership and compelling companies to engage in buybacks and other shareholder-friendly actions, providing a powerful catalyst for the market.

Investors often incorrectly lump all Asian credit into a high-risk bucket associated with emerging markets or distressed property. This misperception creates undervalued opportunities in high-quality liquid markets, such as Japanese financials, which offer relative value without significant incremental risk.

Typically, global investors lead rallies in the Japanese equity market. However, the surge following Sanai Takaichi's election saw unusually strong momentum from domestic investors and high public expectation (68% according to one poll). This reversal of the usual pattern suggests a revival of "Abenomics" optimism locally.

Sir John Templeton's success in 1960s Japan reveals a key pattern: the biggest opportunities lie where volatility and a lack of information deter mainstream investors. These factors create significant mispricings for those willing to do the necessary but difficult research, such as in today's micro-cap markets.