'GO West", sang the camp New York disco group Village People in 1979, extolling the virtues of what is best in the west.

At that time, the US was the world's largest economy and Japan the world's second. That is still the case today, despite Japan disappearing off the radar screen of most investors.

It is fair to say that most investors will have exposure to the UK market, with a fair proportion also investing in Europe. It makes sense to have some exposure to the US which, although suffering from a huge fiscal deficit, is still the economy with the highest economic growth.

Older and weary investors will know just how Japan has fared in the last 25 years, giving an example of how dangerous boom and bust can be.

In late 1982, both the US and Japanese markets ended a year of decline, and started out on steeply rising charts. While the rate of growth in the US was steady, the rate of growth in Japan was nothing short of phenomenal. Japanese electrical goods and cars, on quality and cost grounds, made Japan the biggest exporter in the world.

Any investor buying into the Japanese market in 1982 would have seen their investment increase by more than fivefold by the peak at the end of 1989. Exports provided Japan with a record surplus and private wealth exceeding that of the US. Property prices became the most expensive on the planet. A two-bedroomed apartment could cost more than £2m.

Later investors, encouraged by the growth in the Nikkei, and buying at the end of the 80s, were then to be sadly disappointed, and those still invested since then will be nursing significant losses.

So, what went wrong? When something seems too good to be true, it usually is. The rate of growth was simply unsustainable and something had to give.

Over the last decade, we have seen many false recoveries in Japan.

There is a cyclical upturn under way now though, which indicates that we are seeing a more sustainable economic recovery.

Unlike other periods during the 1990s, this cyclical upturn has been led by the private sector, not fiscal spending on public works projects such as bridges and roads.

The lack of Government stimulus makes this a more robust recovery and, therefore, there is a higher likelihood of it being sustained.

Corporate Japan is more efficient and profitable than it has been for years, thanks to five years of painful restructuring. By exiting unprofitable business lines, streamlining staff, outsourcing and reducing debt, Japanese companies have increased their return on capital from zero in 2000 to about eight per cent today. Property prices have fallen by 90 per cent to more realistic levels.

It is clear that Japan's proximity to China, together with its market-leading expertise in areas such as auto manufacturing, industrial machinery and construction has opened up a potentially massive market for Japanese companies.

At a stock level, the emergence of shareholder focus and, therefore, rising shareholder returns, are likely to drive a market rally. Higher profits and free cash-flow has left huge potential for dividend increases. These in Japan are the fastest of all the major markets.

Higher dividend payouts mean higher share prices, from either the east or the west or, better still, both.

- For investment advice contact Anthony Platts on 01642 608855.

Published: 19/07/2005