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By Andy Hyer

Not that it could implode (everyone expects that), but that it might be a great buy. Brett Arends writes:

The moment you read the word Japan, I’ll bet your eyes glazed over. I’ll bet you thought about flipping the page to see if there was something more interesting elsewhere in this month’s issue — on Greek bonds, maybe, or Apple. (Or gold?) You’re not alone. No one wants to hear about Japan. Fund managers have lost money on Japanese shares every year they can remember, except 2005. Tokyo has been in a bear market for 20 years — about as long as commodities were.

How are the mighty fallen! Twenty-two years ago, Japanese stocks accounted for nearly half the value of the world’s stock markets. The land occupied by the Imperial Palace in Tokyo was valued more highly than all of California. The Japanese were conquering the world. No one could stand in their path.

Today, according to FactSet, Tokyo’s share of global stock values is down to 7.5 percent, the smallest it’s been in decades.

His article then makes the case for Japan being a good value:

Most important of all, the stock market is cheap. Possibly very cheap — at a time when nearly everything else looks pricey. The Nikkei 225, Japan’s major stock market index, trades at just 10 times forecast earnings. The dividend yield is up to 2.3 percent — a hefty amount in a country with zero inflation.

Japanese equities today trade for half of annual revenues, according to FactSet. (The figure for the U.S.: 1.2 times revenues.) And they trade for less than book value, while U.S. stocks trade for twice book.

We all know that good values can become even better values, so that alone shouldn’t justify buying Japan. However, I think it is an interesting exercise to take an absolutely hated investment (Japan in this case) and ask yourself if your investment process is flexible enough to capitalize on a change in a long-term trend.

One way to see if Japan’s apparently attractive valuations translate into strong relative strength is to watch the amount of exposure given to Japan in the PowerShares DWA Developed Markets Technical Leaders Portfolio (NYSEARCA:PIZ):

(Click chart to enlarge)

Source: PowerShares, PIZ

While the current exposure to Japanese equities in PIZ is less than the weight given to Japan in the MSCI EAFE Index (21.58%), Japanese exposure has increased from the 4% weight in PIZ at the beginning of 2011 to its current weight of 11.51%.

Source: Japan: Prepare For The Unthinkable