The Eurekahedge Japan Index is up 1.45% this year to end-July. That's not a bad performance versus the Nikkei 225, which has dropped about 7% over the same period - including the earthquake/tsunami/radiation disaster of March. Japanese hedge funds were flat in June, and up by 0.5% as a group in July.

So far this month the Nikkei 225 is down 11%. Alternative investors, not just in Japan but for the whole of Asia, are waiting to see how hedge funds have coped (it might be better -  if only from a scientific perspective - if markets don't improve for the rest of this month, so we can really tell the men from the boys).

"Japanese equity long-short guys are having a difficult time of it, no doubt," says Ed Rogers, Tokyo-based CIO and CEO of Rogers Investment Advisors, which handles the Wolver Hill Japan Multistrategy Fund. "Market neutral and event-driven are where we are seeing a lot of positives."

Wolver Hill's fund is down by just 1.1% this month and Rogers perceives that his portfolio of hedge fund managers are protecting themselves well. His managers are running 25% to 35% net exposure, and gross exposure of 165% to 185%. For example, one of his fund's investments is an activist manager whose index puts (which have been on the books for some time) have made 8% this month.

Before August, Japanese fund managers had been fixated on micro issues such as local politics - and the likelihood of Prime Minister Naoto Kan's resignation and who would replace him, whether the supply chain has been fixed after the earthquake, and how long it was going to be (based on usual recovery times after natural disasters) before there was a return to economic normality.

Then Japanese managers were caught flatfooted by the US downgrade and the repetition of Europe's unresolved sovereign debt issues. So any return to normal Japanese condition is some way off. Possibly, they think, the end of this year, but then a lot of unexpected things can still happen between now and then.

Yet even with calmer conditions, Japan doesn't exactly have a reputation as a high-growth, beta-friendly market.

"It is not impossible that the Japanese markets could even go down by a further 25% before the end of this year," says Rogers. "Therefore a fund of funds whose due diligence enables it to select a strong portfolio of well-hedged funds, and which then  experiences a 10-15% loss, is going to make its investors a lot better off than those investors who just accept the full loss from the market fall."

The point being: if you want to make money in Japan, you have to know how to profit from bearish markets (it being coincidental that Moody's hacked Japan's government bond rating by a notch to Aa3 yesterday). Fortunately, Japan at least has the right tools to be able to take short positions.