But the SESC is a pale version of its counterparts in other countries. When Japan adopted laws modeled after U.S. securities regulations, it left out the rule stating that fraudulent representation is illegal and unlawful. The best way to research Japanese stocks is to make the most out of the information that companies here do publish. Blame it on the X-factor. Such stories are often trial balloons from the Finance Ministry or big financial companies.
Investors usually play their role perfectly, sending stocks soaring or tumbling for a short time.
One kind of X-factor hints at looming corporate disasters, usually in the financial industry. In January, for instance, Japanese newspapers were packed with unconfirmed reports about the impending collapse of Nippon Credit Bank, one of Japan's biggest lenders. Though people agree that deregulation is good for the economy, they're afraid of holding shares of companies that won't survive in a freer marketplace. Japan's market does hide lots of good stocks behind its ups and downs, and a fund that finds enough of them can break out of the box in which the broad Japanese stock market is stuck. But it takes an experienced hand to ferret out those hot stocks.