On the 5 August, the Japanese benchmark index Nikkei 225 plummeted 12.4% in its worst one-day performance since 1987, while other Asian markets such as Taiwan fell heavily.

There were several factors at play which caused the massive sell-off, not only in Asian markets but globally. How have managers of Japanese funds reacted to the turmoil?

Unsurprisingly, given they are effectively talking up their own books, they have a relatively sanguine outlook. More interesting in terms of insights for investors are the reasons they cite for their continuing confidence.

Carl Vine, manager of M&G Japan (B74CQP7) and M&G Japan Smaller Companies (B7FGLY2) says: ‘Despite unusual volatility, sentiment on the ground in Japan has been relatively calm. The Japanese economy continues along its path of structural improvement, especially in the listed corporate sector.

‘Stock market earnings remain solid thanks to genuine self-help and ongoing structural reform of business models and capital policies. Earnings grew some 12% last financial year and earnings in the current fiscal year appear to be off to a strong start.’

Vine says there are opportunities for an investor to find situations where the market has thrown the baby out with the bath water.

James Salter, chief investment officer and manager of Zennor Japan (BKPVTJ9) has pointed out how cheap the yen is, to put its recent move higher in context, and doesn’t think there will be a big impact on the competitiveness of Japanese firms.

Salter says: ‘It has felt to us that the market has been discounting some of the yen-boosted earnings for some time. We do not expect this to have a radical impact on Japanese competitiveness or even earnings. We are having a market setback but nothing that changes our investment case for Japan based on a corporate governance revolution in Japan – just lower prices and better valuations.’

Finally, Joe Bauernfreund, CEO of AVI Japan Opportunities Trust (AJOT) says: ‘The initial move by the Bank of Japan to raise rates was somewhat of a surprise in that they raised by 15 basis points rather than 10 basis points, alongside their comments about further increases, spooked investors. The 5 August was a bloodbath. But more than that, from our perspective, it left valuations at extremely attractive levels.

‘We saw [this] as a buying opportunity. All the positive things we have been talking about over the past few years in Japan remain in place. The one fly in the ointment is what foreign investors will do now. Clearly some panicked at the first sign the weak yen was reversing course.’

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