This one might sounds odd but according to my data foreign ownership of Japanese stock used to be on the ~40% level out of total corporate Japan and was accounted to ~60% of the daily volume. Recently with Japanese companies taking defensive measures against takeovers (such as cross holdings and poison pills) as well as unsuccessful takeovers bids attempts by foreign funds (such as Steel Partners attempt on Bull-Dog 2804), a very negative message to investors that not much can be done in increasing shareholders equity to the utmost possible. i.e. a flood of foreign investors from the Japanese market with not a clear date for their appetite to this market to recover.

I will add other soft reasons about the market; Japan is used to be a world leader in innovation - now I am not too sure this is the case. Although the Japanese auto makers are still worth to review with cautions and to be consider as investment (as a result of hedging their risk by establishing plants worldwide, and by aggressively pushing the green revolution), for example Toyota (7203) or Honda (7267) to mention few, I would still wait and see how deep this market will plunge.

Domestic Economical Slowdown: The Japanese governments launch a ridicules war against consumer finance companies (provide non secure loans) as well as on regional banks that have lots of loans on their books. As a result a trench of the society that relays on those finances is now in deep trouble. Personal bankruptcies increased substantially between 06’ and 07’ and in simple economic terms the gap between poor and rich is getting wider.

Exchange Rates: Much said about this topic. The yean us heading towards the ¥95=$US1 as global factors forcing it. i.e. means expensive goods from Japan equal slowing sales outside Japan.

Foreign trade reliability: Japanese companies are heavily dependent on the US market as well as other markets. Since the US is slipping into recession, this will not help the export from the land of the rising sun. Some voice the fact that at the same time export to China is stable and growing as substitute to US trade and this will keep the Japanese companies growing. I disagree with this assessment as I believe that Chinese market is a bubble that will burst after the Olympic and as being difficult as it is they do not make the life of Japanese companies easy to grow meaningfully.