Over the last several years, investing in Japan has been a difficult exercise in patience.

Despite offering some of the best stock market values in the world accompanied by a cheap currency, Japanese stocks have posted some of the worst returns. But at some point, I think patient investors will make a small fortune in this country, especially speculating on volatile small-cap stocks. Historically, big bear markets for Japanese smaller companies have eventually rewarded contrarians with big triple digit gains of 100% or more once the selling ended. I’m expecting this to happen over the next 12-24 months.

Japan is not the most shareholder friendly country in the world. Many companies are reluctant to submit to foreign investor pressures like increasing buybacks or issuing special cash dividends. It’s still a clubby environment. Yet many Japanese companies are cash rich today and harbor some incredible values; small-caps continue to trade below book-value and for the first time in a decade, large-cap stocks traded on the Nikkei sell at a discount to their American counterparts as measured by the S&P 500 Index. Many large-caps and even small-caps in Tokyo pay dividends in excess of 3% -- unheard of 15 or 20 years ago.

Another reason to be patient with Japan is the country’s growing role as a distressed investor.

Japan, like most Asian countries, did not suffer significant subprime losses. Japanese banks have largely been conservative players on the world stage since the onset of crippling deflation in the early 1990s wiped-out a good chunk of shareholders’ equity. Many banks have emerged largely unscathed from the ongoing global credit crunch and banks are armed with pools of cash collected from Japanese savers.

On Friday, Sumitomo Mitsui Financial Group (SMFJY) agreed to inject $925 million dollars into distressed British bank, Barclays plc (NYSE-BCS). Though the amount is small relative to Sovereign Wealth Funds, it’s still part of a growing trend in Japan as banks expand their roles and accumulate distressed assets in Europe and the United States. This marks a significant contrast to the 1980s when Japanese institutions loaded-up on expensive California and New York real estate only to get burned when that “bubble” ended in 1989-1990.

Japan is one big contrarian value play. The market is extremely attractive from almost every valuations matrix and, at some point, will lead major economy markets again in stock market performance. I just can’t say when this will occur.

I’m making yet another trip to Tokyo later in September to learn more about this great country and the huge values in equity markets. Stay tuned!