Montreal, Canada

Japan continues to draw the world’s biggest booby-prize when it comes to consistently disappointing investors since markets peaked more than 20 years ago.

Heading into this morning’s trade, the Tokyo Nikkei has declined more than 20% from its 12-month high and, at the same time, Japanese government bonds are surging in value. The yen, among the strongest currencies in the world this year – continues to power ahead.

The yen is up 10% in 2010 against the dollar and up more than 23% versus the EUR. A strong yen is bearish for Japanese exporters as they lose market share to dollar-linked or semi-pegged regional currencies in Asia like the Chinese yuan; it’s no wonder the Nikkei is spiraling out of control.

Deflation is accelerating in Japan despite waves of printing and stimulus over the past decade and beyond. Indeed, Japan is what could happen – or perhaps what’s already inflicting – the United States as the Fed loses control of the economy and its battle against deflation. The wave of economic news since May has increasingly grown negative with housing, employment and manufacturing trends all declining sharply.

Ironically, Japanese stocks still rank as one of the cheapest indexes in the MSCI World Index of industrialized economies.

Japanese large-caps, of course, have been cheap for years and many pay dividends in excess of 3% in yen and trade below book-value. Relative to the MSCI World Index, where Japanese equities command less than a 10% market-cap weighting, stocks sell at a 90% discount!

Japan has been highly contrarian for years. The market is getting cheaper by the day for stock investors as dividends continue to rise accompanied by buybacks. But there’s seemingly no end to the bear market as policymakers are out of gas and the surging yen forces earnings revisions to the downside. You just gotta feel bad for the Nikkei.