Montreal, Canada

Can you name which major market bourse is 70% below its all-time high recorded more than 20 years ago?

More than any other stock market, investors love to avoid Japan. No other country has produced more disappointments for investors since prices peaked in January 1990.

Despite fits and starts over the last decade Japanese equities have consistently lagged their major market peers amid a seemingly never-ending parade of poor corporate earnings, falling prices and flagging domestic consumption.

Japan, which was easily the most expensive "bubble" stock market by 1990, has been a relentless victim of persistent deflation. Interestingly, while the rest of Asia has boomed over the last decade Japan has languished. Adding insult to injury, a soaring yen from mid-2007 until early 2009 dented hopes of a recovery as exporters – which dominate the Nikkei Index – struggled amid a strong currency.

Some would argue the United States is headed in the same direction; despite numerous government spending packages to revive the economy over the last two decades Japanese equities have struggled to gain traction.

But Japanese stocks are turning the corner this year. Whether this marks a major shift in performance is hard to tell since the yen must stay weak vis-à-vis the dollar and the EUR in order for the primary trend to remain sustainable. So far, Japanese stocks rank among the top-performing global bourses this year as the yen continues to soften.

The correlation between a strong yen and a weak Nikkei is quite compelling. And that relationship is working to benefit investors since January with the Nikkei up 7% in yen and 8.8% in dollars. Japanese smaller companies, long regarded as one of the cheapest sectors in the world with many companies paying dividends, have gained 9% in dollars this year.

The yen has declined a cumulative 1.6% in 2010 and lost more than 2% against the dollar over the last seven days of trading alone. The Japanese currency now trades below its 50-day and 200-day moving average, suggesting a top might have already occurred in late March. If that's the case then Japanese stocks will continue to rally as exporters' earnings receive a much needed boost and log better earnings in 2010.

Earlier in March, the Nikkei hit a fresh 18-month high along with many other markets – a bullish signal.

Investors tend to be frustrated and impatient with Japanese stocks. Time and again the Nikkei has disappointed investors and this time might not be any different, especially if there's another major global sell-off, resulting in a stronger yen.

But for now, Japan is making a comeback and a weak yen might result in one of the biggest surprises in 2010 – higher Japanese stock prices.