Are Japanese stocks still a bargain?

I arrived in Japan early this week. I had been here for less than five hours when the first reader tweeted me to ask what had changed and if that change made me feel more or less bullish about the Japanese market.

The first bit is easy. On the face of it, not much. The building I used to live in has been pulled down. That's a good thing it was, as I strongly suspected, not remotely earthquake proof.

The bar in which I wasted a disturbingly large part of my 20s is gone. It has been replaced by a bike rack (it wasn't very big). Most of the other bars l liked have gone too. But they appear to have been replaced by almost identical bars.

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The prices in the bars haven't changed and those of other things don't seem to have either; most things cost roughly what they did ten years ago. I popped into the world's greatest department store Mitsukoshi in Ginza to reassure myself on this point.

And I am pleased to report that a small box of lavishly packed biscuits still costs 2,000 (£11.50) and a perfect melon in a gift box still comes in at about 12,000 (around £70). I've popped a picture of this on Twitter for the doubters among you.

So the city looks and feels much as it has for a good two decades. But look a little closer and there are hints of real change. I might not be able to see inflation in the shops yet, but the statistics tell us it is out there. And why shouldn't it be?

Shinzo Abe, the prime minister, (usually described as "strong," "charismatic" or both) and his Bank of Japan head, Haruhiko Kuroda, have made it clear that they will do whatever it takes to get rid of deflation, and it is rare to meet a politician or central banker who isn't capable of debasing his currency.

Inflation expectations have risen considerably to more than % in a year's time. The administration wants to see core CPI (consumer price index) at 2%; it has already reached 1.3%.

Land prices are rising. I met up with strategist Chris Wood at Asia specialist broker CLSA's Forum and he pointed out that having stagnated for years, overall land prices rose at an annual rate of nearly 5% at the end of last year.

The price of a Tokyo apartment is up 12% from the 2012 bottom. Obviously that's peanuts compared to central London's insane melt-up, but imagine the joy it must be bringing to Japan's long-suffering homeowners.

Then there are wages. There was a worry that the weakening of the yen would encourage Japanese exporters to slash their prices to preserve market share around the world. But that doesn't seem to be happening. The exporters appear to be happy to take the extra yen profits than to cut prices abroad.

The government has made it very clear that it expects a good part of those profits to be handed to workers as higher wages. One speaker at the CLSA Forum in Tokyo this week spoke of the "very strong pressure" on large companies to pay significantly more and several others referred along the way to the difficulties of dealing with recent sharp rises in wages in the construction sector.

You can argue as Mr Wood does that deflation was already on the way out when Mr Abe was elected; the banks had been long fixed and the working age population was falling. There were 87 million Japanese of working age in 1995; now there are just 78.8 million, which may be one reason we have just seen the largest rise on record in the number of Japanese women working.

There is a general expectation that companies can well afford to raise wages by 1% or more this year. Again, that doesn't sound much in a UK context, but remember, this is a country where prices of gift-wrapped melons haven't moved for a decade. That's good for demand and for inflation.

Finally, it's worth noting that Tokyo's hotels are full and its streets jammed with more confused-looking foreigners than usual. I asked a translator helping out in a meeting how busy she was. "Record revenues and record profits," she said.

Why? While they have been short-term net sellers this year, foreign investors have noticed that Japan is no more of a basket case than most Western economies and that it comes with some redeeming features such as solvent banks.

They aren't the only ones. Japan's individual investors have become strong net buyers of Japanese equities and Japan's big institutions might soon come around too. Atsushi Saito of the Japan Exchange Group told his audience that institutional selling is temporary; in the new fiscal year (Japanese companies report to the end of March), they will find they have too few equity holdings and start to buy back in, he predicts.

So, am I bullish as I was? Actually no, I'm not. Stock prices have gone up a lot already: 23% in 2012 and 57% in 2013. Japan is no longer the utter bargain I have been nagging you to buy for the past few years. I'm still happy to be heavily invested. I have some faith in Mr Abe's "third arrow"(his plans for an structural reform of the Japanese economy) and the ability of central banks to create inflation with quantitative easing.

I'm pretty confident that there will be another huge round of QE (quantitative easing) in Japan later this year; Mr Wood notes that the "level of the stock market is a key target of Abenomics". It is perfectly reasonable to assume that the Japanese market will have another great year.

But this is a riskier bet than it was a few years ago. It wasn't possible to be wrong about Japan then, only about the timing.

Today, it still offers good value and there is plenty of money about to push it up. But you don't get the virtual guarantee of (eventual) profit that you once did. The insurance that comes with rock bottom valuations is gone.

This article was first published in the Financial Times.