It has been three years since Prime Minister Shinzo Abe took office and Bank of Japan governor Haruhiko Kuroda launched his aggressive and unconventional monetary policy, characterised by the central bank's enormous balance sheet expansion.
There is no denying the duo has achieved a major equity market rally, driven by a sharp fall in the Japanese yen and a rising expectation that Japanese corporations will continue their structural shift towards improving profitability.
It is important to keep a close eye on developments within the Japanese political arena, and the global macro situation in order to judge whether or not the government's battle against deflation, with an unprecedented set of policies, is likely to succeed.
Over the past few decades, Japan has suffered from slower economic growth due to the prolonged deflationary environment.
However, even in this environment, specific groups of Japanese companies have generated remarkable earnings growth.
These are companies that are benefiting from structural trends in the global economy, which can be witnessed 'behind' the headline macroeconomic figures.
Many of these companies have helped us generate attractive portfolio returns for our clients. These structural trends include rising purchasing power in emerging countries, change in consumption patterns and rising global competitiveness, just to name a few.
We are selective in identifying firms that hold a competitive position in existing growth markets or those that not only benefit from structural trends but also have the ability to grow their earnings by creating new markets with their ability to develop innovative products or services.
Regardless of the perceived success or failure of Abenomics, there are pockets of growth and exciting companies to be found in Japan - which contains a universe of more than 3,000 listed companies.
Our focus is on competitive companies benefitting from structural trends, and we believe select groups within this subset of the deep and diverse Japanese market will provide the best opportunity for serious investors.
Yuki Watanabe is a senior fund manager of Nikko AM and manager of the Japan Focus fund
• Companies riding structural trends are long-term winners
• Improving corporate governance in Japan to boost total equity returns
• Undervalued companies could stay undervalued for years
• Some defensive sector/company valuations are nearing a historical high