A portfolio manager at Janus Henderson Investors, a giant in asset management, said that despite steady gains over the past year, Japanese financial companies still appear to be undervalued, and their increasing dividend payments make them a good investment choice.

Junichi Inoue, who manages the Janus Henderson Japan Opportunities Fund with 43.07 million pounds (54.8 million dollars), says he has gradually shifted from global companies to Japanese financial companies and increased his holdings to about 18.05%. Compiled data shows that Inoue is investing in Sumitomo Mitsui Financial Group ($8316.JP), Tokyo Marine Holdings ($8766.JP) and others. The fund has a return rate of 15% this year, outpacing the MSCI Japan Index (calculated in British pounds) increase of 8.7%, and outperforming 89% of peers in the past year.$Sumitomo Mitsui Financial Group (8316.JP)$/$Sumitomo Mitsui Financial (SMFG.US)$ and $Tokio Marine Holdings (8766.JP)$/$Tokio Marine Holdings (ADR) (TKOMY.US)$His bullishness on Japanese financial companies is highlighted by dividend data. According to compiled data, industry dividends are expected to grow by 9.7% in the next 12 months, ranking third among the 11 major sectors in the TOPIX index. Related indexes for TOPIX banks and insurance companies are also outperforming Tokyo's large caps.

"In the past I tended to hold more international companies than domestic ones - clearly in terms of growth, the domestic industry was behind the world," Inoue said. "But what really changed is that I learned a lot of good news from domestic companies, especially financial institutions. So I have great confidence in financial stocks."

Japanese financial companies benefit from the Bank of Japan's move away from ultra-loose monetary policy because higher borrowing costs help boost loan profit margins and returns on investments. Japanese banks and other banks have also announced share buyback plans in response to government efforts to increase shareholder returns, while also raising dividends.

Inoue said he began investing in financial stocks two years ago during a period when target companies increased dividends. Sumitomo Mitsui Financial Group has raised its dividend per share from 190 yen to 270 yen over the past four years. Similarly, Japan's largest life insurer, Nippon Life Insurance (DCNSF.US), raised its dividend per share from 62 yen to 113 yen during the same period.

The valuation of financial companies is also lower than the overall market, with the P/B ratio of the TOPIX bank index at 0.82 times, compared to the P/E ratio of the TOPIX index at 1.46 times.

Inoue said share buybacks could make sense for financial stocks, but not for all industries. According to compiled data, companies that have announced buybacks and their latest performance have outperformed the TOPIX index by less than 1 percentage point in the next five days.

"Finance is completely different because there has been consolidation in the past, they made a lot of money and kept it, so there is capital surplus," he said.

Junichi Inoue, who manages the Janus Henderson Japan Opportunities Fund with 43.07 million pounds (54.8 million dollars), says he has gradually shifted from global companies to Japanese financial companies and increased his holdings to about 18.05%. Compiled data shows that Inoue is investing in Sumitomo Mitsui Financial Group ($8316.JP), Tokyo Marine Holdings ($8766.JP) and others. The fund has a return rate of 15% this year, outpacing the MSCI Japan Index (calculated in British pounds) increase of 8.7%, and outperforming 89% of peers in the past year.

Edited by Jeffrey