While we are well aware of the relationship between the level of the JPY/USD and the Nikkei in yen terms (1st chart below), there is another less publicized relationship between Japanese stocks and the yen that suggests yen weakness isn't all it's cut out to be. The second chart below shows the percent of Japanese stocks outperforming the MSCI World Index in USD terms over the previous 65-days and the 65-day change in the JPY/USD exchange rate (right axis, red line, inverted). Because after all, for foreign investors in Japanese stocks it's the relative performance in USD terms that matters most. If Japanese stocks underperform the global benchmark while the yen weakens, there is no point in loading up on all things Japan, unless one is currency hedged.
What we observe is that changes in the yen have a noticeably unstable affect on the relative performance of Japanese stocks. Sometimes, like in 2013, the massive yen weakness led to more Japanese stocks outperforming. Alternatively, like in 2014, yen weakness has led to fewer Japanese stocks outperforming. Indeed, as the yen has weakened by 13.5 points over the last 65 days the percent of Japanese stocks outperforming the World stock market has fallen from 80% to 35%. Those are not good odds for a stock picker. Similarly, in 2011 and 2012, yen strength led to more Japanese stocks outperforming and vice versa.
Given the above it is by no means a sure bet that Japanese stocks will outperform in USD terms while the yen weakens. There is actually plenty of evidence to suggest the opposite is more likely. For unhedged stock pickers in venturing into Japan, this poses a significant challenge.