This year has not been kind to Japanese equities. The Nikkei 225 index has fallen by around 15% so far, while the broader Topix index has lost almost a fifth, its worst start since 1995. Foreign investors have been heading for the exits. They have sold around $93bn of Japanese stocks in the past year, as the FT's Leo Lewis points out. And they may not be back in a hurry. Last month's Bank of America Merrill Lynch survey of global fund managers shows that they are more bearish on Japan than at any stage since late 2012.
The main problem has been the strength of the yen, a result of a flight to safety during the global growth scare. It rose by almost 7% against the dollar between January and March, the biggest quarterly jump since 2009. This bodes ill for the Japanese market's heavyweight exporters.
More broadly, three years of Abenomics, the stimulus programme named after Prime Minister Shinzo Abe, has yet to shake Japan out of its long deflationary slump. Despite quantitative easing (QE) and negative interest rates, growth has been lacklustre and inflation is still just below zero, a far cry from the Bank of Japan's 2% target.
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The gloom is overdone, however. For one thing, the Bank of Japan is expected to step up the pace of its QE programme and to push interest rates even furtherbelow zero. Monetary easing tends to weaken the currency, while the extra liquidity finds its way into asset markets. The Bank of Japan could also contemplate even more radical policies.
Artificial stimulus aside, however, the economy is hardly a write-off. The labour market continues to tighten, even if it hasn't yet produced the lasting rise in wages everyone is hoping for. Unemployment is a mere 3.2% and could well fall further. Meanwhile, for all the fuss over negative interest rates crimping bank profits and lending, Japan's banks haven't been this willing to extend credit since the early 1990s, as Capital Economics points out.
Perhaps most encouragingly there has been a corporate governance revolution in Japan. This entails companies being more accountable to shareholders, and crucially returning spare capital to them if it can't be put to good use, rather than hoarding it. As a result of this shift, and thanks also to negative interest rates, share buybacks by Japanese firms have surged to record levels.
Meanwhile, the central bank and the Government Pension Investment Fund are also reliable buyers of the equity market. Throw in attractive valuations, says BMO Global Asset Management's Gary Potter, and "there's hardly any way to go but up".
