The Nikkei 225 has been a marked laggard compared to regional and global benchmarks over the past year. To make matters worse, the Nikkei fails to sustain rallies and faces ongoing sell pressure resulting in new multi-year lows of late (now at 2 years and 7 months). As of Friday’s (3/14) close of 12,241, the Nikkei is off nearly 17% in 2008 and that’s after a 12% loss in 2007.

With the yen now at a 12-year high against the dollar and all the renewed media interest on both sides of the Pacific on the perceived implications for equities (self-fulfilling for struggling Japanese stocks), in addition to further cuts expected at the FOMC’s rate decision meeting on Tuesday, the yen seemingly has more near-term upside.

That said, empirical evidence suggests rising capitulation among individual equity investors, which in turn may indicate a bottom is near. Then again, the 25-day moving average of advancers vs. decliners at 81%, is low by rule-of-thumb measure, but far from the unprecedented 60%-levels registered last summer. There’s also the uncertainty of who will head the Bank of Japan. If you want to get overly bearish, keep talking about subprime-related pressures, while keeping in mind the deteriorating plight of consumers.

At any rate, my best guess is there will be more selling in the coming week or two, pushing the Nikkei 225 into the 11,000-level, as the yen may test the lower 90-level against the US$. With an understanding that a majority of negative factors will have thus been priced into Japanese equities and as the yen eases against the dollar with the start of the new fiscal year, there will likely be a bottom within the next month. One obviously bullish signal is the increasingly attractive yields across the board of domestic equities. Consequently, it will be interesting to watch future Japanese interest in comparatively higher-yielding non-equity overseas assets. Nevertheless, the yen , a “weak” currency itself, is still likely to trade above (but close to) ¥100/$1, even if domestic shares are bought.