Why do Japanese stocks trade at such a huge discount?

For the investing community as a whole, Japanese equities have indeed been a conundrum. Here we have one of the most developed markets in the world. But with valuations that are nearly half of a typical developed country. A recent article in The Economist would perhaps help throw some light. Apparently, the President of a leading Japanese firm was sacked last year. And if you thought he might have committed some fraud, you can't be more wrong. His only fault was that he helped uncover an accounting fraud to the tune of US$ 1.7 bn. But when the truth came out, the board kept their jobs and the whistleblower lost his. Such hand-in-glove relationship of the institutional shareholders with the board of companies is the rule rather than exception in Japan. What more, even the proposal of having independent directors on the board is fiercely opposed every time it crops up. With so much bureaucracy, it is certainly not surprising that attention to shareholder wealth creation gets thrown out the window. It would be an understatement to say corporate governance in Japan needs some serious overhaul. Till then, its equities may continue to be more of a value trap than value buying opportunity we believe.