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It is usually wise to invest when stockmarkets are relatively undervalued and I believe this is the case with the Japanese stockmarket where the prospects are now good. The new Prime Minister looks like following Mr Koizumi’s sensible economic policy. Furthermore, most companies have got over their main problems of over employment, excessive production capacity and too much debt. There are three main reasons why the market has suffered a set back. They are: hedge funds taking profits from last year, Mr Koizumi upsetting the Chinese and South Koreans by visiting Tokyo’s shrine, which honours the Japanese war dead including war criminals, and the scandal surrounding the internet group Livedoor. But growth is now forecast at about 2.7 per cent for 2006, the corporate sector has been recovering fairly fast and now there is a steady growth in consumer demand which looks like expanding further. This will reduce Japan’s dependence on exports. Most analysts estimate about 10 per cent growth in post-tax profits this year and dividends look likely to increase too. All this good news should mean a rising stockmarket. Some of the funds I like include Baillie Gifford Japan, Baring Japan, Fidelity Japan and Fidelity Japan special situations Japan, Schroder Japan alpha and Schroder Tokyo. Among the smaller companies funds I like M&G Japan smaller companies, Baillie Gifford Japan Smaller Companies and Melchior Japan opportunities. Smaller companies funds, in particular, should benefit from increasing consumer demand.