Financial markets were left reeling following the Nikkei's biggest slide since the Japanese tsunami over two years ago, but a plunge in the country's small cap index should have prepared investors, one asset manager told CNBC.
Tokyo's Mothers Index fell over 12 percent on May 8 and slipped 19 percent on May 14, which set alarm bells ringing for Henderson Global Investors' James de Bunsen.
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De Bunsen, who runs portfolios across Henderson's 5.7 billion pound ($8.6 billion) multi-asset division, took off half of his currency hedge and reduced the overweight in Japanese stocks across his portfolios following the small cap index's move.
"You could see there was a little extra volatility in the market a couple of weeks ago. Japan's small-cap index was up 160 percent until mid-May and now it is only 100 percent," said De Bunsen.
"The Mothers Index started misbehaving on the eighth and then fell even further on the fourteenth. It is a very volatile index so a 10 percent fall isn't headline news, but the two falls in quick succession looked more meaningful," he said.
"We scaled back our overweight when we saw the Mothers Index selling off quite dramatically. We still like Japan, but we are a bit more cautious. Those sorts of rallies are unsustainable," he said.
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De Bunsen said the yen was likely to weaken further—perhaps with more volatility than so far this year.
"We will have to see if the actual story has changed in order to take more direct action. We will be watching carefully what the Bank of Japan are saying," he said.
"It is brutal, 7 percent in one day—but it's still up 40 percent for the year and 70 percent from November, so in that context it is not that surprising."
—By CNBC's Jenny Cosgrave. Follow her on Twitter @jenny_cosgrave.