"I have followed your comments on the Japanese reflation story. I find it to be of great interest from an investment point of view. I'm cognizant that you have not (yet, perhaps?) described it as the "opportunity of a lifetime" as you once did in the 2002/2003 era when Koizumi was taking over and replacing the head of the BoJ, a Yen hawk. I say this in half-jest, firstly to indicate I have diligently combed through your archives, and second to elicit your opinion on a deliberate provocation.

"My question is this: if the Japan reflation story is so good, why have bank shares not done as well on the way up as other sectors?

"Here's the data: a top 10 ranking of the Topix industry subsectors shows that in the number one spot is the TOPIX REAL ESTATE INDEX, which is up 68% LTM, followed by TOPIX RUBBER PRODUCTS, and so on. Meanwhile, TOPIX BANKS INDEX is up only 32% in comparison in the number 8 spot.

"I believe your framework is to look at banks as leading indicators during a reflation led market rally. Therefore, why is the performance of bank stocks lagging?

"At the risk of writing too long an email, I'd like to posit an answer to get your thoughts:

"Under Kuroda's 2% inflation targeting, do you think the market is factoring in advance the negative impact higher interest rates will have on the JGB/bond portfolios held by such banks, and therefore this explains some of the underperformance of bank shares? Does this represent a major difference from 2002 when Japan's economy was not as levered as today?

"Or am I wrong, and you think bank stocks will rally at a later stage in the reflation cycle?

"Thanks as always for your enlightening reply."

David Fuller's view Thanks for an interesting email.

Life is a learning process and I can only describe "Opportunity of a lifetime", as a careless exaggeration reflecting over enthusiasm, at best. Consequently, I hope it will not reoccur in my commentary, as it can also have the tone of a hustle rather than analysis. However, I am happy to recall becoming very excited about Japan in late 2002 and early 2003, following the long slide which did create conditions for a decent rally.

Your own research is dilligent but remember, when analysing markets we may do better by monitoring mob psychology, rather than considering subtleties of valuations and academic theories. The market is reactive but it is not a superior intellectual force.

Regarding your second paragraph, I based my assessment on the performance of Japan's three largest banks by capitalisation: Mitsubishi Tokyo Financial, Sumitomo Mitsui and Mizuho Financial. On a relative basis they certainly led Topix higher during November, December and January, but have slightly underperformed recently. I was also considering the MSCI Financial Sector, in which bank shares have the largest weighting. I had seen this Table, produced by colleague Jackson Wong, which he updated again today.

The Fullermoney Chart Library also contains 33 separate stock market sectors for Japan, which you may have reviewed for your third paragraph above. An eighth position performance by banks is still at the forefront, so I conclude there has been no significant loss of form to date.

Regarding your interesting latter questions, I do not have a strong view at this stage. I also think they may be premature in terms of crowd thinking, at a time when banks are not yet underperforming Topix to any significant degree. I think most investors who are interested in Japan are currently worrying about whether to chase or wait for a pullback.