Is anyone bullish on Japan?

March 23 (Bloomberg) — Japanese households are sending funds overseas at the fastest pace since 2007 in search of higher yields as currency strategists predict the yen will slump 8 percent versus the dollar by the end of the year.

Households are buying Chinese stocks and record amounts of Brazilian bonds as they reinvest the biggest sum of maturing Japan Post Bank Co. deposits in nine years. That will help push the yen down to 98 per dollar by Dec. 31 after it gained this year against all but eight of 155 currencies tracked by Bloomberg, the median of 39 strategists’ forecasts shows.

The flight of capital is being driven by 15 years of benchmark interest rates below 1 percent, a sluggish economy, deflation and increasing numbers of retirees in need of better investment gains than they can get at home. The annual rate on Japan Post’s teigaku, or “fixed amount,” time deposits of three years or longer is 0.11 percent, compared with yearly returns of 6 percent from money-market accounts at Itau Unibanco SA, Brazil’s biggest private bank.

“The number of elderly people considering a financial exodus from Japan is on the rise,” said Soichiro Mori, a strategist in Tokyo at FXOnline Japan Co. “They’re preparing for the future by shifting money away from their home turf.”

The yen is basically flat over the last six month and one year but quite a bit higher than it was at the beginning of ‘08:

The Nikkei has been trending higher off the ‘08 lows but is still less than a third of its peak back in ‘89:

There has been a lot of press recently about Japan’s debt to GDP ratio (around 200%) and their demographic problems. Everyone knows Japan has been in and out of deflation for the last twenty years and that they’ve tried repeated Keynesian style stimulus programs to no effect. Basically, the consensus seems to be that there is absolutely no reason to invest in Japan. That sounds like opportunity to this contrarian.

Stocks are cheap in the land of the rising sun with the large caps trading for a little over book value and many small caps trading at significant discounts to book. They don’t look as cheap on an earnings basis (30-35 times depending on what index you use) but that is based on very depressed earnings. If the Japanese housewives continue moving money offshore and weaken the yen, earnings for exporters could be a lot higher (in yen) than currently projected. The Japanese economy is also not as dependent on the US as it once was; trade with China is booming as it is with most of Asia which represents over half of Japan’s exports now.

I don’t have a great case to make for Japan on a macro basis, but the market is unloved and cheap. For a contrarian value investor that and some patience should be enough.