According to Jesper Koll ‘Japan is poised to be the next star performer’ when it comes to the economy. It’s quite a surprising article in so far that it offers a radically different view on this subject than we are used to; most other analysts ignore Japan and, instead, tend to focus their efforts on India and China.

Not so fast says Koll. Japan was an economic superpower once - after experiencing a gigantic economic boom - and it could have a strong economy once again. The boom resulted in a disaster, but Japan seems to have learned how to deal with its own problems, and the economy seems to have picked itself together.

He explains:

Why? Four reasons: two microeconomic and company specific, and two macroeconomic. Since all economies are essentially the parts of the individual players, let’s start with the micro.

One word—hypercompetitiveness. During what seemed like a “lost decade,” corporate Japan was building the right foundation for a strong future. First of all, corporate Japan has invested very aggressively in research and development. Despite banks being bankrupt and politics being terrible, R&D spending was ramped-up aggressively since the mid-1990s, rising from barely 2% of GDP to almost 3.5%. This investment in the future is now paying off. Whether in cars, electronics or even fashion, Japan’s innovation power spans almost the entire spectrum of consumer and capital goods…

But innovation is only one part of a business, cost control is the other. And here Japan Inc. has also taken huge strides. Supply-chain management has improved dramatically, sales and administrative costs have been cut and domestic factory automation has gone into overdrive. The bottom line speaks for itself—productivity has been surging at rates of more than 3% for the past 12 months, a stunning performance against a backdrop of global slowdown. Corporate profit margins have surged to new historic highs. If you exclude currency effects—dollar depreciation hurts profits as exports earn fewer yen—Japan is poised for a fifth consecutive year of double-digit profit growth.

Make no mistake, the combination of relentless investment in R&D plus unprecedented cost cuts and operational rationalization have turned Japan Inc. into a competitive powerhouse that is posed to take global market share from the U.S., European and Asian competitors in the current global downturn, while at the same time delivering better returns and profits. And of course, once the global economy starts to pick up, the upside gearing of Japan Inc. will turbo-charge profits.

That sounds good for investors willing to spend their money in Japan, but there’s more:

OK, so corporate Japan has restructured and invested for the future. What about Japan’s economy? Here, the scope for positive surprises is also better than commonly assumed. Two reasons—one structural and one cyclical. The structural one is inflation. Yes, for Japan inflation is actually very good news. This is because, until last year, Japan had been stuck in over a decade of deflationary rot. During a decade of deflation, consumers and corporations were stuck in a perverse cycle. It was actually rational to hoard money, to keep cash because as prices fell you could count on the purchasing power of your cash to constantly increase.

The result is an unprecedented mountain of “futon money.” Indeed, more than 1.5-times Japan GDP is stashed away in household savings. Mr. and Mrs. Watanabe have been hoarding cash as it was the right thing to do. Deflation breeds deflationary expectations which breed further deflation. Such was the vicious cycle of Japan’s long domestic recession.

Now that prices have begun to rise, this vicious cycle will turn to a virtuous one…

The cyclical reason is also straightforward. Last year, Japan’s private sector was hit with a triple tightening of policy. Fiscal policy, credit policy and regulatory policy were all tightened together, choking off consumer demand as well as forcing a sharp rise in bankruptcies amongst small- and medium-sized companies. Consumer confidence started to slide and the household savings rate surged to more than 16% from barely 12% of incomes .

All this because of policy tightening under Prime Minister Shinzo Abe. The good news: that explains last year’s domestic recession. Mr. Abe got ousted after loosing last year’s election and his successor, Yasuo Fukuda, has been a welcome pragmatist.

Could Japan make an international economic comeback? Koll believes it can, and I’m inclined to agree with him. Japan has a huge market, and the Japanese people are more than willing to work hard, to improve themselves and the entrepreneurial spirit is alive and well in this Asian country.