JERSEY CITY, NJ--(Marketwire - Dec 29, 2011) - The Japan Equity Fund, Inc. (NYSE: [ JEQ ]), a closed-end management investment company, today announced its performance results for the three months ended October 31, 2011, the final quarter of its 2011 fiscal year.

For the quarter ended October 31, 2011, the Fund earned net investment income of approximately U.S. $526,000 (equivalent to income of U.S. $0.03 per share) resulting in net investment income for the year ended October 31, 2011 of approximately U.S. $666,000 (equivalent to income of U.S. $0.04 per share). In addition, net realized and unrealized losses from investment activities and foreign currency transactions during that same three-month period were approximately U.S. $11,810,000 (equivalent to a loss of U.S. $0.81 per share). As a result, the net realized and unrealized losses were approximately U.S. $3,950,000 (equivalent to a loss of U.S. $0.27 per share) for the year ended October 31, 2011.

In comparison, for the quarter ended October 31, 2010, the Fund earned net investment income of approximately U.S. $435,000 (equivalent to income of U.S. $0.03 per share) resulting in net investment income for the year ended October 31, 2010 of approximately U.S. $436,000 (equivalent to income of U.S. $0.03 per share). In addition, net realized and unrealized gains from investment activities and foreign currency transactions during that same three-month period were approximately U.S. $3,707,000 (equivalent to a gain of U.S. $0.26 per share). As a result, the net realized and unrealized gains were approximately U.S. $4,074,000 (equivalent to a gain of U.S. $0.29 per share) for the year ended October 31, 2010.

On October 31, 2011, the total net assets of the Fund were approximately U.S. $86.9 million. The net asset value ("NAV") per share on that date was U.S. $6.01, based on 14,456,819 shares outstanding. In comparison, total net assets on October 31, 2010 were approximately U.S. $91.0 million, equivalent to a NAV of U.S. $6.30 per share, based on 14,446,336 shares outstanding. Assuming the reinvestment of the U.S. $0.055 per share dividend paid on December 30, 2010, the Fund generated a negative investment return of 3.74% for the year ended October 31, 2011, when measured against the NAV per share of U.S. $6.30 on October 31, 2010, based on 14,446,336 shares outstanding at that time. During the same period, the Fund's benchmark, the Tokyo Stock Price Index (the "TOPIX Index") decreased by 2.24% in U.S. dollar ("USD") terms.

As of October 31, 2011, the Fund had 98.45% of its net assets invested in Japanese common stocks. The remaining net assets were represented by a short-term USD-denominated time deposit (0.18%) and other assets less liabilities (1.37%).

As of December 28, 2011, the Fund's NAV per share was U.S. $5.61, based on net assets of U.S. $81.1 million. On the same date, the market price of the Fund's shares on the New York Stock Exchange closed at U.S. $4.94, representing a trading discount to net asset value per share of 11.94%.

Market Review and Outlook

In October, the TOPIX finished 0.38% higher. After the fierce sell-off in August and September, the Tokyo market rebounded slightly. Progress was made in clearing European debt troubles and benign U.S. economic indicators reduced fears of a recession, and as a result the global equity market rebounded strongly. During the month, though, the Japanese market underperformed other major equity markets. Factors contributing to underperformance include: 1) a smaller decline than other markets over the past few months, 2) the yen surging to a post World War II high, and 3) concern over Japanese manufacturers affected by flooding in Thailand. In addition, corporate scandals, which arose at both Olympus and Daio Paper, may have negatively affected the sentiment of global investors towards the Japanese market.

We have to keep in mind that turbulent market conditions will persist at least for the next few months as the global economy remains fragile and as European debt troubles will repeatedly advance and pull back despite any progress that is made. Below, we will discuss several points regarding movement of the Tokyo market through the last two months of 2011 and into 2012:

• European agreement and global economic outlook
  It may be too early to decide whether the Eurozone's comprehensive strategy to tackle its ongoing sovereign debt problems is wide-ranging enough. However, European countries have at least moved a step forward in solving the issue. Another positive sign is on the economic front. Although the downside risks to economic activity in developed nations was not completely vanquished, U.S. economic data suggested weakness in some soft data, including some data that indicated signs of a turnaround in business and consumer sentiment, while hard data, which includes employment and production figures, provided a surprise upside to market participants. Several emerging countries began to reverse their monetary policies and transition from tightening to easing. As such, we maintain our main outlook that the global economy will continue to recover, albeit gradually.
  
  
• Two headwinds pushing back Japanese corporate profits: the strong yen and flooding in Thailand
  The yen continued to appreciate throughout the month of October, despite a weakening of investors' moves to de-risk. Various members of Prime Minister Noda's cabinet have repeatedly stated that concern over yen appreciation is among their top priorities and, at the end of October, Japan's monetary authority intervened in the foreign exchange market and reversed the yen -- which had appreciated to a post-WWII high of 75.32 yen per dollar -- back to the 78 yen/dollar level after hitting a high of 79 yen/dollar in the moments immediately following the intervention. The Bank of Japan ("BoJ") also announced an expansion of its asset purchase program, from 50 trillion yen to 55 trillion yen. Although it is difficult to believe that the yen will change course anytime soon amid the currency devaluation race currently existing between developed countries, Japanese companies have adjusted their business activities in an effort to not only deal with this, but to take advantage of any further yen appreciation through measures such as global procurement and cross-boarder merger and acquisition activity.
  
  The recent flooding in Thailand has had a much more serious impact on Japanese manufacturers than was initially expected and this situation may persist for the next several months, as approximately 3,000 Japanese companies had developed manufacturing facilities in the country. Automobile companies and hard disk drive producers were among the hardest hit. Although the floods were an unfortunate situation, once the flooding recedes and the situation returns to normal, companies that provide machinery and automobiles in the region will benefit from a corresponding boost in demand, which provides attractive investment opportunities.
  
  
• Corporate Scandal at Olympus
  Olympus Corporation, the producer of cameras and endoscopes, announced its discovery that it had been engaging in the deferment of losses on securities investments since the 1990s and that a series of fees paid by the company, including fund acquisitions, had been used to resolve the posting of such deferrals. Regulators including, the Securities and Exchange Surveillance Commission (SESC) of Japan and the Securities and Exchange Commission (SEC) in the United States, are investigating past M&A activities of Olympus. The scandal weighs not only on Olympus shares, but also in the Japanese equity market as the accounting fraud may be seen as a series of loopholes in Japan's accounting standards rather than an isolated event in one company. From an investor's standpoint, signs of wrongdoing were reflected in its accounting statements by looking at its balance sheets and cash flow statements carefully. We believe that this scandal is a company-specific event, and that the vast majority of Japanese companies do in fact state their financial results appropriately. Having said this, improving transparency in corporate governance and accounting statements are some of the tasks that companies must now address in earnest to win back the confidence of investors.
  
  
• Corporate earnings and restructuring announcements
  The Japanese market is now in the midst of the corporate earnings announcement season, and we have seen many companies revise their profit forecasts downwards for the second half of FY2011 amid the yen's appreciation and the weakness in overseas demand. In addition, several eye-catching restructuring projects, including lay-offs, asset write-downs and the like, were announced by various stalwart companies such as Panasonic, TDK and Sony. With that said, we have actually observed a rather positive reaction to these downward earnings announcements, as most of the negative news had already been reflected in stock prices. While these announcements of restructuring activities can have a negative effect on stock prices in the short-term, they may also create a low from which corporate profits can recover through next year and beyond.
  
  Although Japan's domestic economy remains resilient thanks to post-quake reconstruction activities, the market will remain volatile as investors' de-risk and re-risk shift is likely to continue amid thin trading volume and as several macro factors have overwhelmed investor sentiment. We believe the Japanese market is preparing for a rally, and expect that concerns surrounding the market will ease rather than worsen for the time being. Cheap valuations, including an average price-to-book ratio of 0.9 times and a price-to-earnings ratio of 11 to 12 times will help lend additional support to the market.
  
  

The ten largest industry classifications of the Fund's Japanese equity investments held as of October 31, 2011 were:

The Fund's ten largest individual common stock holdings at the same date were: