“Every dog has his day” – even the dismal Japanese stock market. The TOPIX index is again languishing at the bottom of league tables, having fallen 8% so far this year against an average rise of 7% in other major markets (as measured by the MSCI World ex Japan index). Four factors hint at better performance. First, the latest Ministry of Finance business survey was solid, suggesting the economy is bouncing back from early summer weakness – see chart. Second, corporate earnings continue to outpace expectations: analyst upgrades have outpaced downgrades in each of the last three months. Third, the liquidity backdrop has improved, with inflation-adjusted broad money recently growing faster than industrial output, having lagged in 2006. Finally, investor sentiment is depressed – arguably a precondition of a turnaround. According to Merrill Lynch’s global fund manager survey, pessimists on Japan now outnumber optimists for the first time since 2003.