Japan's economic growth may have collapsed in the second quarter but investors aren't giving up on the market, which is negative territory year to date.
Chris Weston, chief investment strategist at IG said Japan is currently his most favored market on account of attractive valuations compared with other developed markets and positive earnings momentum.
"Japan's my number one place to be invested right now," Weston told CNBC on Wednesday.
The price-to-earnings ratio for the Topix - which has fallen over 3 percent this year - is 14.3, compared with 18.2 for the U.S. benchmark S&P 500.
Of the companies on the Topix that have reported quarterly earnings, 52 percent have beat analyst estimates for net income, according to data compiled by Morgan Stanley.
"Corporate Japan is in good shape: we've seen record levels of stock buybacks and a decent earnings season," he said.
The big kicker for the market will come if the Bank of Japan decides to step on the gas pedal again by boosting its asset purchasing program, Weston said.
Expectations for additional monetary stimulus have been on the rise in recent months amid weakening growth momentum owing to the April sales tax hike.
Asia's second-largest economy suffered its worst contraction since 2011 in the second quarter as higher tax payments weighed heavily on consumer demand. Gross domestic product (GDP) shrank an annualized 6.8 percent in the three months to June, slightly better than estimates for a 7.1 percent drop.
If the government is to proceed with its second consumption tax hike – to 10 percent from 8 percent - in 2015, the central bank will likely need to counter the fiscal tightening with further stimulus, Weston said.
Following the data release, economy minister Akira Amari said that a decision on plans to hike consumption tax by another two percentage points will hinge on various economic data ahead. But Amari remained upbeat on the world's third-largest economy, noting a surge in GDP before a tax hike and a reactionary slump is a normal response. He expects the country to continue a moderate recovery as the effect of the April tax hike wanes, a view shared by some analysts.
Waiting on GPIF
Expectations that Japan's public pension fund, the world's largest around $1.24 trillion, will increase its investment in equities are also contributing to positive sentiment around the market.