Want to invest in a country with massive government debt, rock-bottom interest rates, and a struggling financial sector? No, I'm not talking about the U.S. -- because when it comes to a track record of these three factors, Japan wins hands down.

With the challenges it faces, Japan may not sound like the perfect place to put your money. But recently, investing interest in the country has been on the rise, as value investors put money into exchange-traded funds that track Japanese stocks. That raises the perennial question: Could the bottom finally be here for the island nation's stock market?

Lost decade? How about two?
If so, it's been a long time coming. Ever since 1989, when the Japanese Nikkei index reached its all-time high, stocks in Japan have given investors a rough ride. Even when you take currency exchange fluctuations into account, Japanese stocks have returned less than 1% annually in U.S. dollar terms since 1997.

Now, though, value investors are starting to find bargains among Japanese stocks. Even among the names with which U.S. investors are familiar, Honda Motor (NYSE: HMC) and Panasonic (NYSE: PC) both trade below their respective book values. And even among more richly valued stocks, such as Toyota Motor (NYSE: TM) and Canon (NYSE: CAJ), extremely optimistic future growth rates could well justify higher valuations if they actually pan out.

But you may not find the best values among the well-known big-cap stocks that tend to have listings on U.S. exchanges. Some investors are looking at more mid-tier companies that you won't find in investments that target Japanese large caps, such as the iShares MSCI Japan Index ETF (NYSE: EWJ) or Japan Equity Fund (NYSE: JEQ). Rather, you have to do some extra work to invest directly in Japanese-listed stocks -- or use a closed-end fund like Japan Smaller Capitalization Fund (NYSE: JOF), which does what its name suggests by picking promising smaller stocks that are off most investors' radar screens.

Where the future lies
In previous decades, Japan relied on the health of the U.S. economy as its primary export market. But now, China is Japan's biggest trading partner. As a result, Japan's prospects moving forward will increasingly be tied to the world's biggest emerging market rather than its biggest developed nation.

That's good news for the country's economy, but it doesn't solve all of Japan's problems. The International Monetary Fund recently warned Japan that its total outstanding government debt was much too high. At nearly 200% of the nation's gross domestic product, Japan's debt is the largest of any developed nation, and even among smaller economies, only Zimbabwe posts a higher debt ratio.

Meanwhile, Japan's private sector has its own worries, some of which are eerily similar to what the U.S. has gone through over the past several years. After watching a big real estate bubble pop, Japanese banks went through a financial crisis. But because the government didn't require them to recognize losses quickly, the banks' problems took a lot longer to work themselves out. Even with the stimulative effect of low interest rates that have been in place for a long time, an aging population is threatening to overwhelm Japan's generous pension system.

Crying wolf
This isn't the first time that Japanese stocks have enjoyed a good-sized rebound from low levels. The Nikkei more than doubled from 2003 to 2007. Yet in the market meltdown, it gave back all those gains and then some, burning value investors who dreamed of seeing Japan soar back to the heights of the 1980s.

Is this time different for Japan? The answer to that question rests with what Japanese businesses do with the growth potential of their neighbors across the East China Sea. Having essentially squandered their opportunity to attain consistent growth on the shoulders of U.S. expansion, Japan has gotten a second chance to get it right on the back of China's growth. Skeptics will demand proof before they commit capital, but if you count the Japanese out, you might well miss the international value investing opportunity of a lifetime.

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Fool contributor Dan Caplinger is turning Japanese -- he really thinks so. He doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy looks east to the rising sun.