Harker says that historically, bond yields in Japan have been driven down but now he thinks they are trending higher.
"This can only be terrific news for equity," he explained. "Since September 2009 there has been an argument that the low growth and the rising age of the Japanese population will drive current accounts into deficit."
"This would lead to the currency collapsing, at which point Japanese Government Bonds (JGB) will be re-priced, leading to a collapse of the bond market."
"A lot of people share this view but it has proved to be completely wrong. We do not have an apocalyptic view of Japan."
According to Harker, investors have misunderstood Japan’s past.
"Japan normalised 12 years ago and banks have been through a cleansing process for 20 years. This has led to valuations being compellingly cheap," he added.
"Japan is at the bottom of a very large credit cycle, where the US and UK have years of flushing out debt and bullishness ahead. This difference makes Japan a compelling second region for UK investors."
Harker’s GLG Japan Core Alpha portfolio is overweight banks, brokers and insurance companies, based on the view that global interest rates are on the rise.
He also has a large bet on the Japanese telecoms market. "If I was picking two stocks for investors to back this year then I would choose Mitsubishi UFJ Financial Group and [Japanese telecom giant] NTT."
"Mobile phone provider KDDI is also a good bet," said Harker.
"Telecoms are unbelievably cheap at the moment. We also like the retail and land transportation sectors."
Performance of fund vs sector over 5-yrs
Source: Financial Express Analytics
Harker’s fund, GLG Japan Core Alpha, has returned a massive 35.2 per cent over five years compared with the IMA Japan sector average, which would have lost investors 8.3 per cent.
Harker does not understand why investors are so cautious about exposure to the region.
"Most people look at Japan as half empty. We see it as half full. They see risk. We see opportunity. I’m still astonished by how few people have a full position in Japan."