Japan has been among the best performers of the world's equity markets in the year to date, up around 11 per cent in yen terms and generally more when measured in other currencies.

Investors lucky enough to have participated in this rally might be tempted to take profits; others are asking whether or not it is too late to get on board.

Many people have played Japan as a way of gaining exposure to China (and other aspects of Asian growth, including India), without having to directly enter markets that are still rather opaque to the foreigner.

It is always risky trying to gain indirect exposure to an investment theme. Questions arise about the nature of the underlying investment idea: does it make sense to throw money at something that cannot be accessed directly?

In previous columns, I have explained why direct participation in the Chinese story is difficult, if not actually inadvisable for the individual investor. Issues of corporate governance and the treatment of overseas shareholders in Chinese companies top a long list of concerns.

Hence, the argument for buying Japan - or any other market which is geared in some way into the Chinese growth story - where these worries are less pressing, makes some sense.

But we also have to consider the intrinsic merits of the market we are buying. In the case of Japan, the arguments have been strong and have been mostly related to growth.

Economic growth seems to have returned to Japan after more than a decade's absence. The China story fits well, since a lot of the Japanese growth dynamic is coming from exports to the rest of Asia. And Japan's number one economic problem, deflation, is showing signs of coming to an end.

Deflation - actual falls in the price level, not just falling inflation - has dogged Japan since its bubble burst at the end of the 1980s.

Much of what has happened in the US over the past couple of years can be understood in terms of the US determination to avoid the Japanese experience. US monetary and fiscal policy has been run at full-on expansionary levels to eliminate deflation risk.

Because that policy has been successful, some dimwit commentators have criticised the US authorities for recklessness; such is the lot of the policymaker who averts disaster.

Deflation destroyed the Japanese banking system and stopped the economy from growing. Only recently have the authorities been pursuing an appropriate stance (printing money) and the effects have been exactly as the text books predict: prices have stopped falling and, in some key areas, have shown signs of rising.

Luck (exports to China and elsewhere) and deliberate policy have combined to produce an economic revival. And the banking system looks as if it might be coming back to life.

Nowhere is all of this more apparent than in the behaviour of the stock market in general, and the bounce in bank share prices in particular.

Shares in Mizuho and UFJ, two of Japan's largest financial institutions, have rocketed in excess of 700 per cent from their respective lows.

Land prices, a faithful barometer of Japan's boom and bust, fell nearly 50 per cent from their peak but are showing signs of revival.

Incidentally, bears of British and Irish property prices always use the experience of Japan to rubbish the idea that low interest rates can underpin high real estate valuations - zero interest rates in Japan have done little, until recently perhaps, to stop the crash in Japanese property. Such partial arguments ignore the existence of generalised deflation.

Sceptics of Japan say we have seen all this before. There have been several significant bounces in the Nikkei during the long bear market. Each time, the foreign investor was sucked in, only to be disappointed when the Japanese economic recovery proved to be another mirage. And it has to be acknowledged that the foreigner is once again the investor doing the buying; Japanese equity holders have been more than happy to sell out over the past year.

Overseas investment into Japanese equities soared to a record 14 trillion yen (€107.4 billion)over the past 12 months. But it should also be remembered that the investors doing most of the buying back at the peak of the bubble were almost exclusively Japanese; perhaps the pain of that experience means they will never buy equities again.

Another concern relates to China itself. There, the authorities are growing concerned that the growth miracle is showing more than a few signs of becoming a bubble.

In recent days there have been several attempts to tighten monetary policy in order to try and restrain run away bank lending. It seems that a revaluation of the currency is only a matter of time.

If China is set to slow, the implications for investment in Japan are obvious. But the question is one of degree: if a modest slowing in the Chinese economy is in prospect there is little to be worried about. Indeed, such an event would ultimately be a cause of celebration. But many fear that a bubble is about to burst.

It seems to me that most of these concerns are more about timing: China and Japan may be about to wobble but I don't see a trend reversal coming up.

I am impressed by the domestic economic revival in Japan - policy is now verging on sensible - and I have faith in the ability of the Chinese to slow their economy without prompting a crash.

If concerns over Asian growth do prompt another sell-off in Japan I would view that as a buying opportunity, either of a unitised-style product with heavy Japanese exposure or, for the brave perhaps, a direct purchase of shares in Japanese banks. The ultimate leveraged play on Japan has been, and remains, the banking system.