Fear struck the U.S. market in recent weeks. But overseas, things were much worse…

Japanese stocks took a beating that put the U.S. declines to shame. The benchmark Nikkei 225 Index dropped 19.5% in three trading days… And that included a single-day crash of 12.4%.

It was a dramatic fall in a short period of time. But that’s no reason to give up on Japanese stocks for good.

Instead, history tells us big gains are likely on the way. And if you have the conviction to buy, you could see 22% potential upside over the next year.

Japan is a big reason for the recent market turmoil. You see, hedge funds got in the habit of borrowing in Japanese yen to invest in U.S. stocks.

Japan’s low interest rates made this a profitable trade. But then, on July 31, the Bank of Japan raised rates to 0.25% for the first time in years. The trade began to unwind… And the yen staged a massive rally.

This is one of the biggest reasons why U.S. stocks suffered their recent slide. Traders rushed to sell risk assets to cover their losses. And the same trend caused the massive sell-off in Japanese stocks, too.

Again, the benchmark Nikkei 225 dropped 12.4% in a single day. Take a look…

It was a brutal decline. In fact, the fall was just about as bad as it gets in the Japanese market… Only one single-day drop has been worse going back to 1970.

I wanted to see what’s likely to happen next in Japanese stocks. So to get more data, I looked at each one-day decline of 8% or more since 1970.

Those kinds of declines are still rare. We’ve only seen eight others over this time period… But they were darn good times to act. Check it out…

Investing in Japan has led to 5% annual gains since 1970. That’s not bad, given that this market is just coming out of three “lost decades.” Japanese stocks recently hit their first new all-time high since 1990.

It pays to buy this market after setups like we’ve seen recently, though. History shows these situations almost always lead to huge outperformance…

Similar setups led to 3.1% gains in three months, 11.9% gains in six months, and 22.4% gains over the next year. Plus, Japanese stocks were positive a year later 100% of the time. And the smallest one-year gain was an impressive 11.6%.

It’s always possible that this time will be different. But history is darn clear in this case…

One-day crashes don’t last long for Japanese stocks. And if you’re bold enough to step up and buy in these moments, the reward could be well worth it.

Good investing,

Brett Eversole

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Source: Daily Wealth