If Japanese stocks were cheap a few weeks, they've become a whole lot cheaper -- in fact, they are now trading at the cheapest levels on record ... or at least over the last 20 years.
Below is the price to book ratio of the Topix Small Cap Index. I use the small cap index because it gives me an appreciation of the value of the broader market, which is much more representative than the major market indices such as the Nikkei. The average price to book ratio is some 0.63x. This compares to about 1.25x for the U.K. and U.S. (the FTSE Small Cap and Russell 2000).
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There is something else that should be taken into account: Cash sitting on a Japanese company's balance sheets is significantly higher than at its U.K. and U.S. counterparts (about 25% more), so if you were to strip out this cash component, the price to book valuation differential would be even more pronounced.
Where is the bottom in the Japanese equity market? I don't know, but it is difficult to make a case for any significant downside from current valuation levels.
In John Templeton's immortal words: "The best time to buy is at the point of maximum pessimism." I think that time is now for Japanese equities.
Disclosure: I am long EWJ, JOF.