The recent out-performance of Japanese equities and currency against those of other leading developed economies will continue, market participants expect. Unlike previous rebounds in the past decade, the economic growth was for real and would stay, Standard Life Investments investment director and global strategy head Andrew Milligan said. 'The growth this time is sustainable, as it is led by improvements in corporate profits and consumer spending and not just by exports and not by government stimulus,' Mr Milligan said. 'The country now is in the early stage of domestic upturn driven by improvements in employment, real income and consumer confidence and the Japanese recovery will likely lead to growth in the region.' There were fears Japan's recovery could be slowed by high oil prices, rate increases in the United States and an economic slowdown in the mainland but Mr Milligan said investors had been 'overly concerned' about the negatives. 'There're a lot pessimists out there. But I think investors have been pricing in an aggressive Fed tightening policy together with a China hard landing,' he said. Mr Milligan also said the Japanese stock market would be well supported by dividend yield. This remained low at about 1 per cent to 2 per cent but was still higher than inflation and bond yields. JP Morgan Private Bank director Helen Ng was also upbeat on Japan and expected the yen would continue to strengthen. Interest rates in Japan had been low and investors had borrowed yen for higher-yielding assets such as the US dollar. This 'carry trade' would be reversed with the continued recovery, Ms Ng said. Some were also expecting the Bank of Japan might allow the yen to rise amid a stronger economy. The central bank was selling yen to keep Japanese exports cheap but it has not intervened in the market since March. Some observers said the bank might find a mild currency appreciation affordable with an economic recovery led by rising domestic spending and confidence, not export growth. Market observers also said some currency investors were buying yen on expectation of a potential interest-rate rise in Japan. Deutsche Bank expects long rates to rise to 1.8 per cent in the fourth quarter next year and 2.5 per cent in the fourth quarter of 2006, given sustained recovery and the accompanying rise in inflation.