A slow dawn but not a false one

For fund managers who specialised in Japan, 2005 was a fantastic year. After more than a decade of dealing with a market in the doldrums they suddenly found themselves in the middle of a boom: stocks were rising fast, gurus around the world were tipping Japan as their favourite market and Japanese-themed hedge funds were springing up everywhere. Money poured in and the managers — who had looked resentfully at the fortunes being made in US and UK markets for many years — started to live the dream: they opened offices in St James and rushed to buy the cars, boats and houses that the City thinks go with making real money. By the end of the year the benchmark index was up around  40 per cent and they were all rolling in cash.

Anyone with any history in Japan could have predicted what happened next. In 2006, as other markets clocked up another great year, the Japanese market rose a pathetic 4 per cent — and that only because a few big exporters (Toyota, Honda, Canon, Nintendo) did brilliantly; take them out of the mix and the average stock actually fell by about 20 per cent.