The Baillie Gifford Japan investment trust, focused on smaller companies, stood still in the six months to February 28.
Net asset value rose by only 0.3% while the main TOPIX index managed to put on 3%. The trust's share price, however, finished the period 2.4% higher and at a premium to net asset value.
The trust said continuing progress in the Japanese market (7.2% in yen terms) had been driven principally on the back of strong gains by very large companies.
It said: "The Japanese economy has continued to expand, although the pace of growth has slowed property and labour market indicators remain encouraging and capital expenditure remains robust."
Growth companies were no longer trading at a valuation premium to the market and the managers had increased holdings in a variety of long-term growth stocks on modest valuations.
Merger and acquisition activity had picked up significantly and "we should see further developments", the trust said.
"The main area of weakness is consumption where, despite tight labour markets and some wage rises for temporary workers, overall wage growth has been minimal.
"This may be a side-effect of many older workers reaching 60 and moving from highly-paid, full-time work to part-time, lower-paid employment, or may signal difficulty for the unquoted sector. Developments in this area will be monitored closely over the next few months."
During the period the trust's weighting in real estate and construction fell from 9.1% to 5%. It bought holdings in Accordia Golf, a company which buys and improves the operating performance of golf courses that have gone bankrupt; Shimadzu, a world leader in scientific instruments; and Privee Investments, a company taking an activist approach to investing in Japan's private railways.
Shareholder activism on issues like increased dividends is now beginning to emerge in Japan, and the trust says "the pressure is clearly building".
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