We've heard it all before but Japan is coming back

It's not unusual for sighs, scoffs and shrugs of shoulders to greet any suggestion of Japan as a possible punt for a racy investment.

"Japan's economy has flopped more often than Tim Henman over the past decade," says Simon Ward, an economist at fund manager New Star.

Since the bull market of the late 1980s, when its stock market index went into orbit to nudge 38,915, Japan has seen long years of decline, with periodic predictions of a full recovery. But the rising sun has proved something of a chimera.

Instead, the country's comeback since its economic collapse and the bursting of the property bubble has been marked by several false dawns and a relapse into stagnant growth.

For every step forward there have been two backwards, amid consistent failure by governments, banks and businesses to clean up the bad debts hampering the economy.

In the face of risible growth, Japanese workers have chosen to shore up their finances and save their salaries - further dampening consumer spending.

These repeated setbacks have hardened the scepticism felt about the country by many economists, fund managers and independent financial advisers (IFAs). "We've heard the story on Japan so many times before, it seems almost on a loop," says Ben Willis of IFA Chartwell. "Early last year, there was a lot of talk about Japan being the place to put your money, but [the expected boost] didn't quite happen - so we're still very wary."

Chartwell's stance is reflected in its decisions on where to invest money belonging to customers in "discretionary" accounts: not a penny goes to Japan.

Most IFAs, and many in the financial services industry, share this sentiment. But the reluctance to consider the country could mean that an investment opportunity is being missed. For another set of promising economic signs is beginning to blink very brightly in Japan.

Last week, the Nikkei 225 stock market index closed at its highest level in four years, 12,472. Although this is still less than a third of its 1989 peak, there is buoyancy elsewhere too: for the first time in 13 years, the average price of residential property in Tokyo is on the up; unemployment is at a six-year low; corporate profits are rising at record levels; workers' real incomes (after inflation) are edging up; and consumer demand for Japanese goods is increasing, according to figures released last week.

Although some political reforms spearheaded by the country's Prime Minister, Junichiro Koizumi, have played a part in all this - forcing banks to cut bad debt, for example - others haven't. His recent attempt to overhaul the Japanese post office, the world's biggest savings bank, failed - and sparked a general election for 11 September. His commitment to reform, however, is seen by many as a positive sign.

But tales of recovery are nothing new; what is different this time? According to Simon Somer- ville, a manager at fund manager Jupiter, the crucial factor is that growth is being fuelled in Japan's home market. "In the past, turnaround hopes have been based on a recovery in exports, which in turn relies on the strength of other economies, particularly the US.

"By contrast, the current recovery is led by internal or domestic factors."

Indeed, Jupiter is so convinced about the revival that it is planning to launch a Japan Income fund - unthinkable for the past few years - on the back of companies paying dividends again to investors.

Mr Ward at New Star is enthusiastic about the upswing - "it's looking like the real thing" - but warns that much reliance remains on growth in other countries. "It still seems doubtful whether the economy has sufficient momentum to withstand a downturn in exports should global demand falter."

For UK investors who want to spice up their investments with a racy individual savings account, Japan could be an alternative to far more popular overseas funds backing China, India or emerging markets in Latin America or Eastern Europe.

But what to invest in, and how much to invest, depends on your approach to risk and the other funds you have. "We recommend that investors dedicate [no more than] 5 to 10 per cent of their portfolios to Japanese funds [which spread your money among different companies]," says Mike Owen of IFA Plan Invest.

Although optimistic, he remains wary of risks such as Japan's ageing population - "which provides a drag on the economy".

If you're happy to take a punt on just one fund, he recommends Legg Mason Japan Equity, which invests in small and medium-sized companies. "This is not a fund for widows and orphans; it will be highly volatile. But past performance is well above that of its peers."

Over the past three years, it has been one of the best-performing funds to invest in Japan, according to credit agency Standard & Poor's (S&P). If you had invested £1,000 in 2002, it would be worth £1,889 today.