Japan is still a buy one year on

Japan tsunamiLast year was an annus horribilis ('year of horrors') for the Japanese people, nation and economy.

Disaster strikes Japan
On 11 March 2011, an earthquake, tsunami and nuclear meltdown caused widespread damage to Japan's east coast. At a magnitude of 9.0, the Tōhoku earthquake was the most powerful to hit Japan in modern history.

As well as killing up to 20,000 people, it caused extensive damage to the Fukushima Daiichi nuclear power plant. As a result, this was the most expensive natural disaster on record, with costs estimated by the World Bank at $235 billion (£150 billion).

With the world's third-largest economy suffering a body blow, financial markets reacted as you'd expect. In the three days following the quake, the Nikkei 225 (Osaka: ^N225 - news) index plunged 17.5% to a closing low of 8,605 on 15 March 2011. This took the Nikkei to its lowest level since April 2009, and immediately got me thinking about a previous Japanese earthquake and financial meltdown.

Time to buy
When the Kobe earthquake rocked Japan on 17 January 1995, the Japanese stock market headed southwards. Within four days, the benchmark index had fallen 7.6% -- an event that led to rogue trader Nick Leeson bankrupting and then fleeing his esteemed employer, Barings Bank.

However, following the Kobe quake, it took the Nikkei 225 only until December 1995 to reach and surpass its pre-quake level. Hence, on 15 March 2011, I urged Foolish investors to pile into Japan, in order to ride the recovery generated by the construction effort and the government's emergency economic stimulus package.

Almost exactly one year later, the Nikkei 225 index today stands at 9,890 points, up 1,285 points from the low, which is a gain of 15% in just short of 12 months. Over the same period, the FTSE 100 index has climbed by less than 2% and the US S&P 500 index is up 5.6%. Hence, I'm very happy to have made the call to buy into Japan, and I hope a few Fool readers followed my advice!

30 disappointing years
Of course, veteran investors will know that, for decades, the world's third-biggest stock market has been a total disaster for both private investors and fund managers.

In the final stages of the 'roaring Eighties', the Nikkei 225 index hit an all-time high of 38,916 on 29 December 1989. When this bubble inevitably burst, the Nikkei plunged 82% in the next 20 years, hitting a low of 7,055 on 10 March 2009. As a result of this spectacular boom and bust, Japan's stock market had gone nowhere in 30 years.

Throughout the Nineties and Noughties, fund managers and stock analysts urged investors to pour more money into Japan, arguing that it was due a sustained rebound. They were proved wrong each and every time, as Japanese share prices continue to decline year after year after year.

Japan still looks cheap
Then again, at the beginning of this year, I argued that Japanese equities were showing signs of value.

Historically, the dividend yield for the Nikkei 225 has hovered around the 1% mark. According to Bloomberg, the Nikkei's current yield is 1.85% -- higher than its historic average, but lower than January's 2.2% yield.

What's more, in terms of book value, Japanese shares are much cheaper than their American equivalents. As a whole, the Japanese market is valued at a substantial discount to its book value, whereas the US market trades at more than twice book value. This wide gulf in valuations seems odd, especially given Japan's stricter accounting standards for dealing with depreciation and write-downs.

In summary, I firmly believe that canny investors should continue to increase their exposure to Japan, aiming to benefit from the rising profits of Japan's biggest, brightest and best businesses.

The easiest and cheapest way to be bullish on Japan is to buy a low-cost index-tracking fund or exchange-traded fund that tracks the Nikkei 225 or another broad market index such as the MSCI Japan index.

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