UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Item 1. Reports to Stockholders.

The Japan Equity Fund, Inc.

General Information (unaudited)

The Fund

The Japan Equity Fund, Inc. (the "Fund") is a diversified, closed-end management investment company. The investment objective of the Fund is to outperform over the long term, on a total return basis (including appreciation and dividends), the Tokyo Stock Price Index ("TOPIX"), a composite market-capitalization weighted index of all common stocks listed on the First Section of the Tokyo Stock Exchange ("TSE"). The Fund seeks to achieve its investment objective by investing substantially all of its assets in equity securities of companies listed on the TSE or listed on the over-the-counter market in Japan or listed on other stock exchanges in Japan. Daiwa SB Investments (U.S.A.) Ltd. (the "Manager") is the Fund's Investment Manager. Daiwa SB Investments Ltd. is the Fund's Investment Adviser. The Fund implements an "active" portfolio management policy, which is an approach that involves quantitative valuation of securities to identify an appropriate universe of securities from which to select investments, with judgmental analysis then applied to this universe to determine the actual investments to be made by the Fund.

Stockholder Information

The Fund's shares are listed on the New York Stock Exchange ("NYSE"). The Fund understands that its shares may trade periodically on certain exchanges other than the NYSE, but the Fund has not listed its shares on those other exchanges and does not encourage trading on those exchanges.

The Fund's NYSE trading symbol is "JEQ". The Fund's daily net asset value is available by contacting the Fund's administrator Aberdeen Asset Management Inc. by:

• Calling toll free at 1-866-839-5205 in the United States,

• E-mailing InvestorRelations@aberdeen-asset.com, or

• Visiting the website at www.japanequityfund.com.

Also, the Fund's website includes press releases, a monthly market review and a list of the Fund's top ten industries and holdings. The Fund has also placed its Fund governance documents on its website under the section titled "Information", which includes the Fund's proxy voting policies and procedures, its code of ethics and its audit committee charter.

Inquiries

Inquiries concerning your registered share account should be directed to the American Stock Transfer & Trust Company (the "Plan Agent") at the number noted on the next page. All written inquiries should be directed to The Japan Equity Fund, Inc., c/o Aberdeen Asset Management Inc., 1735 Market Street, 32nd Floor, Philadelphia, PA 19103.

Proxy Voting Policies and Procedures

A description of the policies and procedures that are used by the Manager to determine how to vote proxies relating to the Fund's portfolio securities is available (1) without charge, upon request, by calling toll free

The Japan Equity Fund, Inc.

1-866-839-5205 in the United States; (2) by visiting www.japanequityfund.com; and (3) as an exhibit to the Fund's annual report on Form N-CSR which is available on the website of the Securities and Exchange Commission (the "Commission") at www.sec.gov. Information regarding how the Manager votes these proxies is now available by calling the same number and is available on the Commission's website. The Fund files with the Commission its report on Form N-PX covering the Fund's proxy voting record for the 12-month period ended June 30 by August 30 of the relevant year.

Quarterly Portfolio of Investments

A Portfolio of Investments is filed with the Commission as of the end of the first and third quarters of each fiscal year on Form N-Q and is available on the Commission's website at www.sec.gov and the Fund's website at www.japanequityfund.com. Additionally, the Portfolio of Investments may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC- 0330. The quarterly Portfolio of Investments will be made available without charge, upon request, by calling 1-866-839-5205.

Dividend Reinvestment and Cash Purchase Plan

A Dividend Reinvestment and Cash Purchase Plan (the "Plan") is available to provide Stockholders with automatic reinvestment of dividends and capital gain distributions in additional Fund shares. The Plan also allows you to make optional annual cash investments in Fund shares through the Plan Agent. A brochure fully describing the Plan's terms and conditions is available on the Fund's website at www.japanequityfund.com and from the Plan Agent by calling (866) 669-9904 or by writing The Japan Equity Fund, Inc., c/o the American Stock Transfer & Trust Company, Operations Center, 6201 15th Avenue, Brooklyn, NY 11219.

A brief summary of the material aspects of the Plan follows:

Who can participate in the Plan? If you wish to participate and your shares are held in your name, you may elect to become a direct participant in the Plan by completing and mailing the Enrollment Authorization form on the back cover of the Dividend Reinvestment and Cash Purchase Plan Brochure to the Plan Agent. However, if your shares are held in the name of a financial institution, you should instruct your financial institution to participate in the Plan on your behalf. If your financial institution is unable to participate in the Plan for you, you should request that your shares be registered in your name, so that you may elect to participate directly in the Plan.

May I withdraw from the Plan? If your shares are held in your name and you wish to receive all dividends and capital gain distributions in cash rather than in shares, you may withdraw from the Plan without penalty at any time by contacting the Plan Agent. If your shares are held in the name of a financial institution, you should be able to withdraw from the Plan without a penalty at any time by sending written notice to your financial institution. If you withdraw, you or your financial institution will receive a share certificate for all full shares or, if you wish, the Plan Agent will sell your shares and send you the proceeds, after the deduction of brokerage commissions. The Plan Agent will convert any fractional shares to cash at the then-current market price and send you a check for the proceeds.

How are the dividends and distributions reinvested? If the market price of the Fund's shares on the payment date should equal or exceed their net asset value per share, the Fund will issue new shares to you at the

The Japan Equity Fund, Inc.

higher of net asset value or 95% of the then-current market price. If the market price is lower than the net asset value per share, the Fund will issue new shares to you at the market price. If the dividends or distributions are declared and payable as cash only, you will receive shares purchased for you by the Plan Agent on the NYSE or otherwise on the open market to the extent available.

What is the Cash Purchase feature? The Plan participants have the option of making semi-annual investments in Fund shares through the Plan Agent. You may invest any amount from $100 to $5,000 semi-annually. The Plan Agent will purchase shares for you on the NYSE or otherwise on the open market on or about February 15th and August 15th of each year. Plan participants should send voluntary cash payments to be received by the Plan Agent approximately ten days before the applicable purchase date. The Plan Agent will return any cash payments received more than thirty days prior to the purchase date. You may withdraw a voluntary cash payment by written notice, if the notice is received by the Plan Agent not less than two business days before the investment date.

Is there a cost to participate? There are no Plan charges or brokerage charges for shares issued directly by the Fund. However, each participant will pay a service fee of $2.50 for each investment and a pro rata portion of brokerage commissions for shares purchased on the NYSE or on the open market by the Plan Agent.

What are the tax implications? The automatic reinvestment of dividends and distributions does not relieve you of any income tax which may be payable (or required to be withheld) on such dividends and distributions. In addition, the Plan Agent will reinvest dividends for foreign participants and for any participant subject to federal backup withholding after the deduction of the amounts required to be withheld.

Please note that, if you participate in the Plan through a brokerage account, you may not be able to continue as a participant if you transfer those shares to another broker. Contact your broker or financial institution or the Plan Agent to ascertain what is the best arrangement for you to participate in the Plan.

The Japan Equity Fund, Inc.

Stockholder Letter (unaudited)

November 14, 2012

Dear Stockholders:

It is our pleasure on behalf of the Board of Directors to present the Annual Report for The Japan Equity Fund, Inc. (the "Fund") for the year ended October 31, 2012.

Market Review (November 2011 – October 2012)

The Tokyo market traded virtually sideways for the twelve months ended October 2012, resulting in a return of –0.63% in Japanese yen terms for the year. Japanese equities rallied temporarily over the first three months of the period, due mainly to investors expectations of a more expansive monetary policy coming from the Bank of Japan (BOJ). However, soon after, such expectations subsided and the rally faded away, bringing the market back to the same level at which it had begun the term.

Although the debt situation in Europe continued to receive a lot of attention over the past year, concerns over European debt became somewhat more controllable, at least for most market participants. News from the region ebbed and flowed just as it had last year, but investors responded less intensely, as markets around the world grew more accustomed to the issue. The Chinese economy was also disappointing, as many had expected to see the government launch fiscal measures similar to those seen in 2009 to support the fragile economy. However, the Chinese government did not take any decisive action in the lead up to the transfer of power at the Communist Party conference in November.

As for Japan's domestic situation, the country's export-laden characteristics had a negative impact on both the economy as well as corporate earnings. Earlier this year, we had expected to see earnings growth of 20% for the 2012 fiscal year, but this figure was reduced to the mid-single digits amid an anemic economic environment. As a result, we can say that the Tokyo market moved in step with this weakening fundamental outlook.

A sector-based review of developments in the Japanese equity market shows that the real estate, other finance business and pharmaceutical sectors performed relatively well, while pulp & paper and marine transportation names were among the worst performers. During the period, market participants kept their focus on the actions of the BOJ, or at least on the actions the central bank intended to take. Although some pundits blamed the BOJ for its lack of aggressiveness in fighting the deflationary pressure faced by the country, the bank has been busy supplying liquidity to the real estate market by continuing to purchase Japanese real estate investment trusts (J-REITs) and printing money to bolster the currency market. Naturally, real estate companies were the main beneficiaries of these measures, although companies in the other finance business sector such as non-bank financials also outperformed on the back of similar actions. In general, non-banks have been the primary lenders to real estate companies and, hence, they enjoyed the benign business environment created by these loose monetary policies. In other news, shares of pharmaceutical companies rallied for their own specific reasons. Most pharmaceutical manufacturers had struggled with the expiration of various patents and other intellectual properties on major drugs as well as a lack of any new prospective medicines. Recently, however, some of these companies have developed new drugs with great potential, and their shares appreciated accordingly.

In contrast, a capacity glut and weak demand were the norm for losers over the past twelve months. Companies in the pulp & paper sector hesitated to slash excess paper capacity in response to the declining domestic

The Japan Equity Fund, Inc.

consumption trend. Some of these companies also have weak balance sheets and were shunned by investors amid an uncertain market environment. Marine transportation stocks, have been some of the worst performers for two consecutive years, as the supply of shipping company vessels around the world has significantly exceeded real demand.

Performance/Attribution Analysis

Table 1: Performance vs. the Benchmark (TOPIX), USD base

Table 2: Attribution Analysis Summary, JPY base (Latest 12-Months) – Equity Only

¹  Due to fluctuations in foreign exchange rates, this value may differ from the total investment return based on net asset value at beginning and end of year, assuming reinvestment of dividends, provided in the Financial Highlights section of the Fund's Annual Report.

The Japan Equity Fund, Inc.

Table 3: Portfolio Return vs. Benchmark Return, USD base (monthly)

Table 4: Attribution Analysis Breakdown, JPY base (Latest 12M) – Equity Portion Only

The Japan Equity Fund, Inc.

Table 4: Attribution Analysis Breakdown, JPY base (Latest 12M) – Equity Portion Only (continued)

Comments:

As shown in Table 1, the net asset value (NAV) of the Fund decreased by 4.91% in USD terms during the twelve months from November 2011 to October 2012, while the benchmark (TOPIX index) dropped 5.17% in USD terms. As a result, the portfolio outperformed the benchmark by 0.26% for the period.

Table 2 shows that the performance of the equity portion of the portfolio (excluding expenses and cash positions in JPY terms) was –1.15% versus the benchmark return of –0.63%, which indicates that the Fund underperformed by 0.52% on this basis. Relative to the TOPIX, the sector selection effect was –0.03%, while the stock selection effect was –0.49% (see Table 4 above).

In terms of sector selection, the positive effects generated by the Fund's underweight position in the electric power & gas sector (+0.42%) and its overweight in the other financing business sector (+0.40%) were more or less fully offset by a series of negative results, including the Fund's underweights in pharmaceuticals (–0.57%) and food (–0.32%).

The stock selection effect was negative, with the major detractors including our stock picks in the chemicals (–0.91%) and precision instruments (–0.32%) sectors, although various positive selection effects such as those generated by banks (+0.43%) and air transportation stocks (+0.42%) mitigated the extent of the underperformance.

Major negative contributors for the year included Sumitomo Chemical (chemicals) and Nikon (precision instruments), while Mizuho Financial Group (banks) and Japan Airline (air transportation) contributed positively. Specifically, Sumitomo Chemical was directly affected by weakening demand for its petrochemical products, which is a bellwether of the Japanese economy as well as several others throughout Asia. Similarly, Nikon suffered from a significant drop off in its sales of digital cameras. Conversely, Mizuho Financial performed well, thanks to the benign monetary policies of the BOJ as well as other central banks throughout the world's developed markets. Japan Airline, which was re-listed on the Tokyo Stock Exchange following an initial public offering a

The Japan Equity Fund, Inc.

few months ago, exhibited stable performance, as the once-bankrupt air carrier was a market favorite as a turnaround play.

Outlook & Strategy

According to initial estimates, Japan's real GDP shrank by 3.5% over the July-to-September period. There is a high probability that the negative growth will continue from October going forward as well, and it is very likely that the Japanese economy entered a period of contraction during the August-to-October period. What is important to note here is whether this will be a protracted period of contraction or it will end in the near future. The Japanese economy is strongly influenced by the global economy, and the US and Chinese economies are the key drivers of the global economy. The primary reason that Japanese stocks traded within a tight range between August and October is that opinions on the strength of the world economy next year are divided into two distinct camps. Bullish observers hold that the Chinese economy will bottom out in the near term while the US economy will perform well and, as a result, they believe that the global economy will enter into a recovery phase in 2013. Conversely, bearish observers think that the US economy will soon begin to decelerate while the slowdown of the Chinese economy continues. There are concerns that the upcoming "fiscal cliff" faced by the United States, in which large-scale tax cuts implemented during the prior administration will expire, will create downward pressure on the US economy. However, approvals of public investment by the Chinese government have accelerated, and some now expect the Chinese economy to be supported by the aftereffects of this beginning in January of next year. At present, neither the bulls nor the bears have made a decisive argument, so it has become difficult for investors in the Japanese market to either actively chase highs or probe lows.

Our analysis of the positive and negative factors currently surrounding Japanese equity market continues as follows:

Positives:

1.  A Bullish US Economy

The US economy remains strong despite the clear and continued deterioration of the global economy. The primary factors propping up the US economy are the bottoming out of home prices, the implementation of QE3 (the third round of quantitative easing) and the recent boom in shale gas development. However, there are also concerns about the impact of the continued deterioration of the Chinese economy as well as the impending fiscal cliff going forward.

2.   BOJ Announcement of Strengthened Quantitative Easing

On October 30th, the BOJ announced a heightened monetary easing policy, which included the injection of an additional JPY11 trillion into its purchase program for Japanese Government Bonds (JGBs) and other assets. The BOJ's second consecutive month of easing was perceived to be the most aggressive stance the central bank has ever taken on the monetary policy front, as, until now, the BOJ has had a relatively reserved attitude compared to the aggressive monetary easing seen in many other countries around the world. As a side effect, however, this added to the upward pressure on the yen. Observers now expect the BOJ's strengthened stance on easing to contribute to the currency's depreciation going forward.

3.   Historically Low Japanese Equity Valuation Levels

The price-to-book ratio (PBR) of the TOPIX stood at 0.92x as of the end of October, which represents a historically low level. This also amounts to a historically high spread of 1.77% between the TOPIX's dividend yield (2.54%) and the long-term interest rate (0.77%), which implies that stock prices are significantly discounted at the moment.

The Japan Equity Fund, Inc.

Negatives:

1.  Continued Downward Revisions to Corporate Earnings Forecasts

There has recently been a conspicuous deterioration in the overall profitability of Japanese corporations, as evidenced by the JPY765 billion loss projected by Panasonic and the JPY450 billion loss expected by Sharp with net profit forecasts for the fiscal year ending March 2013.

2.   Prolonged Economic Sluggishness in China and Other Emerging Countries

China has decided to pursue a policy of monetary easing and has earmarked 1 trillion Yuan for a series of economic support measures. However, the country's economic deceleration has not stopped. The after effects of the real estate bubble and the impact of Europe's economic stagnation are now beginning to come to the forefront. China is not alone, however, as emerging economies overall have clearly experienced some degree of deceleration, including Brazil, India, Russia and Indonesia.

3.   Continued Boycott of Japanese Products in China

In September, there were a number of intense anti-Japan demonstrations in China, and the boycotting of various Japanese products has continued ever since. As a result, the 40% to 50% YoY reduction in Japanese automobile sales in China that lasted through September and October will continue into the foreseeable future.

4.   No Sign of Resolution to Southern Europe's Debt Crisis

The Southern European debt crisis seems to have eased for the time being following the European Central Bank's (ECB) announcement of unlimited sovereign bond purchases and the inauguration of the European Stability Mechanism (ESM). However, a true solution remains far off in the distance, and there are persistent concerns that the recent instability will soon re-emerge.

Regarding our sector allocation strategy, we remain somewhat overweight in cyclical stocks, as we forecast a gradual recovery of the global economy to begin early next year. However, considering the increased likelihood of a risk scenario in which the global economy will continue to slowdown, we are investing in such a way that we believe will limit the sector allocation risk in the portfolio to some extent.

In the latest quarter, we continued our policy of increasing value risk. In particular, we increased our allocation to small-cap stocks, of which there are many that exhibit deep value characteristics. Small caps are trading at extreme discounts compared to their large-cap peers, and we expect them to continue to outperform on a relative basis due to the attention they have gathered for their acquisition prices. Our policy, then, will be to actively invest in deep-value small-cap names that are less vulnerable to any continued deterioration in the global economy and that are able to maintain relatively healthy earnings profiles.

Fund Performance

During the year ended October 31, 2012, the Fund's market price on the New York Stock Exchange ("NYSE") ranged from a low of $4.83 per share on June 12, 2012 to a high of $5.74 on April 2, 2012. The Fund's NYSE market price closed at $5.00 per share on October 31, 2012.

The NYSE market price in relation to the Fund's net asset value per share during the year ended October 31, 2012, ranged from a high discount of 13.84% on November 23, 2011 to a low discount of 6.20% on November 3, 2011, and ended the period at a discount of 11.82%.

The Fund has not invested in derivative securities. Although foreign currency hedging is permitted, the Fund has not engaged in any foreign currency hedging.

The Japan Equity Fund, Inc.

We thank you for your support of The Japan Equity Fund, Inc. and your continued interest in the Japanese economy and marketplace.

Sincerely,

The Japan Equity Fund, Inc.

Portfolio of Investments

As of October 31, 2012

The Japan Equity Fund, Inc.

Portfolio of Investments (continued)

As of October 31, 2012

The Japan Equity Fund, Inc.

Portfolio of Investments (concluded)

As of October 31, 2012

*  Non-income producing security.

(a)  Fair Valued Security. Fair Values are determined pursuant to procedures approved by the Board of Directors.

(b)  See notes to financial statements for tax unrealized appreciation/depreciation of securities.

The Japan Equity Fund, Inc.

The Japan Equity Fund, Inc.

Statement of Assets and Liabilities

As of October 31, 2012

The Japan Equity Fund, Inc.

Statement of Operations

For the Year Ended October 31, 2012

The Japan Equity Fund, Inc.

Statements of Changes in Net Assets

Amounts listed as "—" are $0 or round to $0.

The Japan Equity Fund, Inc.

Notes to Financial Statements

1. Organization

The Japan Equity Fund, Inc. (the "Fund") was incorporated in Maryland on July 12, 1990 under its former name "The Japan Emerging Equity Fund, Inc." and commenced operations on July 24, 1992. It is registered with the Securities and Exchange Commission as a closed-end, diversified management investment company. The Fund's objective is to outperform over the long term, on a total return basis (including appreciation and dividends), the Tokyo Stock Price Index (TOPIX).

2. Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The U.S. Dollar is used as both the functional and reporting currency.

(a) Security Valuation:

The Fund is required to value its securities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Prior to October 1, 2012, the Fund determined net asset value based on valuations made as of 5:00 p.m. Tokyo time, on each day. Securities which are listed on the Tokyo Stock Exchange, or listed on the over the-counter market in Japan, or listed on other exchanges in Japan and for which market quotations were readily available, were valued at the last reported sales price available to the Fund at the close of business on the day the securities were being valued or, lacking any such sales, at the last available bid price. In instances where quotations were not readily available or where the price as determined by the above procedures was deemed not to represent fair market value, fair value was determined in such manner as the Board of Directors (the "Board") prescribed. Short-term investments having a maturity of 60 days or less were valued at amortized cost, except where the Board determined that such valuation did not represent the fair value of the investment. All other securities and assets were valued at fair value as determined in good faith by, or under the direction of, the Board.

Effective October 1, 2012, except as described in the next paragraph equity securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which the security is traded at the "Valuation Time." The Valuation Time is as of the close of regular trading on the New York Stock Exchange (usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the mean of the bid/ask quoted at the close on the principal exchange on which the security is traded. Securities traded on NASDAQ are valued at the NASDAQ official closing price. A security using any of these pricing methodologies is determined as a Level 1 investment.

Foreign equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying fair valuation factors to the last sale price. Fair valuation factors are provided by an

The Japan Equity Fund, Inc.

Notes to Financial Statements (continued)

independent pricing service provider. When the fair value prices are utilized, the value assigned to the foreign securities may not be the same as quoted or published prices of the securities on their primary markets. These factors are based on inputs such as, Depositary receipts, S&P 500 Index/S&P 500 Futures, Nikkei 225 Futures, sector indices/ETFs, exchange rates, and historical opening and closing prices of each security. If the pricing service is unable to provide a valuation factor, or if the valuation factor falls below a predetermined threshold, the security is valued at the last sale price. A security that applies a fair valuation factor is determined as a Level 2 investment. When no fair valuation factor is applied, the security is determined as a Level 1 investment.

In the event that a security's market quotations are not readily available or are deemed unreliable, the fair value of a security is determined by the Fund's Pricing Committee, taking into account the relevant factors and surrounding circumstances. A security that has been fair valued by the Pricing Committee may be classified as Level 2 or 3 depending on the nature of the inputs.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Fund discloses the fair value of its investments using a three-level hierarchy that classifies the inputs to valuation techniques used to measure the fair value. The hierarchy assigns Level 1 measurements to valuations based upon unadjusted quoted prices in active markets for identical assets and Level 3 measurements to valuations based upon unobservable inputs that are significant to the valuation. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability, which are based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:

Level 1—quoted prices in active markets for identical investments;

Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk); or

Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).

The following is a summary of the inputs used as of October 31, 2012 in valuing the Fund's investments carried at fair value. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Please refer to the Portfolio of Investments for a detailed breakout of the security types:

The Fund held no Level 3 securities at October 31, 2012.

The Japan Equity Fund, Inc.

Notes to Financial Statements (continued)

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing transfers at the end of each period. During the year ended October 31, 2012, due to the addition of fair valuation factors (as described above), all securities that are currently Level 2 have transferred from Level 1 to Level 2. For the year ended October 31, 2012, there have been no significant changes to the fair valuation methodologies other than described above.

(b) Repurchase Agreements:

The Fund may enter into repurchase agreements. It is the Fund's policy that its custodian/counterparty segregate the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. The repurchase price generally equals the price paid by the Fund plus interest negotiated on the basis of current short-term rates. To the extent that any repurchase transaction exceeds one business day, the collateral is valued on a daily basis to determine its adequacy. If the counterparty defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the counterparty of the security, realization of the collateral by the Fund may be delayed or limited. There were no repurchase agreements outstanding during the year or as of October 31, 2012.

(c) Foreign Currency Translation:

The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities and other assets and liabilities stated in Japanese yen are translated at the exchange rate prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. The resulting exchange gains and losses are included in the Statement of Operations. The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market price of securities. Foreign securities, currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate of said currencies against the U.S. Dollar, as of the Valuation Time, as provided by an independent pricing service approved by the Board.

(d) Security Transactions, Investment Income and Expenses:

Investment transactions are recorded on the trade date (the date upon which the order to buy or sell is executed). Realized and unrealized gains and losses from security and foreign currency transactions are calculated on the identified cost basis. Dividend income and corporate actions are recorded generally on the ex-date, except for certain dividends and corporate actions which may be recorded after the ex-date, as soon as the Fund acquires information regarding such dividends or corporate actions. Interest income is recorded on an accrual basis.

(e) Distributions:

The Fund records dividends and distributions payable to its stockholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These book basis/tax basis ("book/tax") differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment;

The Japan Equity Fund, Inc.

Notes to Financial Statements (continued)

temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as return of capital.

(f) Federal Income Taxes:

The Fund intends to continue to distribute substantially all of its taxable income and to comply with the minimum distribution and other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for federal income taxes is required. As of October 31, 2012, the Fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. As of October 31, 2012, the Fund did not have any unrecognized tax benefits. The Fund's federal tax returns for each of the four fiscal years up to the most recent fiscal year ended October 31, 2012 remain subject to examination by the Internal Revenue Service.

The Fund is not subject to any Japanese income, capital gains or other taxes except for withholding taxes on certain income, generally imposed at rates of 7% on interest and dividends, paid to the Fund by Japanese corporations.

(g) Earnings Credits:

The Fund's custodial arrangements include a provision to reduce its custodial fees by the amount of earnings credits recognized on cash deposits in demand deposit accounts.

3. Agreements and Transactions with Affiliates

(a) Investment Manager and Investment Adviser:

The Fund has an Investment Management Agreement with Daiwa SB Investments (U.S.A.) Ltd. (the "Manager"). Daiwa SB Investments Ltd. ("DSBI" or the "Adviser"), an affiliate of the Manager, acts as the Fund's investment adviser pursuant to an Investment Advisory Agreement between the Manager and DSBI. For such investment services, the Fund is obligated to pay the Manager a monthly fee at an annual rate of 0.60% of the first $20 million, 0.40% of the next $30 million, and 0.20% of the excess over $50 million of the Fund's average weekly net assets, of which 60% of this fee is paid by the Manager to DSBI. In addition, the Fund has agreed to reimburse the Manager and the Adviser for all out-of-pocket expenses related to the Fund. For the year ended October 31, 2012, no such expenses were paid to the Manager or the Adviser. For the year ended October 31, 2012, the Manager earned $123,656 and the Adviser earned $185,484, as reflected in the Statement of Operations.

At October 31, 2012, the Fund owed $25,538 to the Manager and/or Adviser.

(b) Administrator and Custodian and Other Related Parties:

Under the terms of the Fund Administration Agreement effective September 28, 2012, Aberdeen Asset Management Inc. ("AAMI") provides various administrative and accounting services, including daily valuation of the Fund's shares, preparation of financial statements, tax returns, regulatory reports, and presentation of quarterly reports to the Board. For Fund Administration, the Fund pays AAMI an annual fee based on the Fund's average weekly net assets as set forth in the fee schedule below.

The Japan Equity Fund, Inc.

Notes to Financial Statements (continued)

Fee Schedule

The Board has also approved the payment of the administrative compliance expense for the Fund in the amount of $75,000 per annum to AAMI, for services provided by AAMI staff in implementing the Fund's compliance management system and the Fund's compliance review program. This amount is included in the administration fee in the Fund's Statement of Operations. For the year ended October 31, 2012, AAMI earned $18,948 from the Fund for administrative services.

Prior to September 28, 2012, Daiwa Securities Trust Company ("DSTC"), an affiliate of the Manager and the Adviser, provided certain administrative services to the Fund (in such capacity, the "Administrator"), for which the Fund paid DSTC a monthly fee at an annual rate of 0.20% of the first $60 million of the Fund's average weekly net assets, 0.15% of the next $40 million and 0.10% of the excess over $100 million, with a minimum annual fee of $120,000. For the year ended October 31, 2012, DSTC earned $212,805 from the Fund for administrative services. In addition, as permitted by the Administration Agreement, the Fund reimbursed the Administrator for its out-of-pocket expenses related to the Fund. During the period of November 1, 2011 through September 27, 2012, expenses of $10,008 were paid to the Administrator, representing reimbursement to the Administrator of costs relating to attendance by its employees at meetings of the Fund's Board.

Prior to September 28, 2012, the Board had also approved the payment of the administrative compliance expense for the Fund in the amount of $75,000 per annum to DSTC, for services provided by DSTC staff in implementing the Fund's compliance management system and the Fund's compliance review program. This amount is included in the administration fee in the Fund's Statement of Operations.

Effective September 28, 2012, State Street became Custodian for the Fund's assets. Prior to September 28, 2012, DSTC also acted as custodian for the Fund's assets and as of September 21, 2011 had appointed Daiwa Securities Trust and Banking (Europe) PLC (the "Sub-Custodian"), an affiliate of DSTC, the Manager and the Adviser, to act as the sub-custodian for all of the cash and securities of the Fund held in Japan. As compensation for its services as custodian, DSTC received a monthly fee and reimbursement of out-of-pocket expenses. Such expenses include fees and out-of-pocket expenses of the Sub-Custodian. During the year ended October 31, 2012, DSTC and the Sub-Custodian earned $40,185 and $70,648, respectively, as compensation for custodial service to the Fund.

During the year ended October 31, 2012, the Fund paid or accrued $184,838 for legal services in connection with the Fund's on-going operations to a law firm in which the Fund's Assistant Secretary is a consultant.

4. Tax Information

For federal income tax purposes, the cost of securities owned at October 31, 2012 was $84,166,569, excluding short-term investments. At October 31, 2012, the net unrealized depreciation of investments for federal income tax purposes, excluding short-term securities, of $(4,415,374) was composed of gross appreciation of $2,509,541

The Japan Equity Fund, Inc.

Notes to Financial Statements (continued)

for those investments having an excess of value over cost, and gross depreciation of $(6,924,915) for those investments having an excess of cost over value. For the year ended October 31, 2012, total aggregate cost of purchases and net proceeds from sales of portfolio securities, excluding short-term securities, were $92,387,371 and $93,270,735, respectively.

In order to present undistributed net investment income, accumulated net realized loss, and paid-in capital in excess of par value on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to undistributed net investment income, accumulated net realized loss on investments, and paid-in capital in excess of par value.

For the year ended October 31, 2012, the adjustments were to decrease net investment income by $5,353 and increase realized loss by $5,353 primarily related to the reclassification of realized foreign currency gains and investment in passive foreign investment companies. Net investment income, net realized losses and net assets were not affected by this change.

The tax basis components of distributable earnings differ from the amounts reflected in the Statement of Assets and Liabilities by temporary book/tax differences primarily arising from investments in passive foreign investment companies, wash sales and unused capital losses. As of October 31, 2012, the components of accumulated earnings (deficit) on a tax basis were as follows:

At October 31, 2012, the Fund had a remaining capital loss carryover of $22,247,972 which will be available to offset future net capital gains.

During the current year, no capital loss carryforwards expired or were utilized.

Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. Capital loss carryforwards expire as follows:

The Japan Equity Fund, Inc.

Notes to Financial Statements (continued)

The tax character of distributions paid during the fiscal years ended October 31, 2012 and October 31, 2011 was as follows:

5. Capital

There are 30 million shares of $0.01 par value common stock authorized. During the year ended October 31, 2012, 24,992 shares were issued on December 28, 2011 at the reinvestment price of $4.94. The net asset value per share on that date was $5.61. Of the 14,335,432 shares of the Fund outstanding at October 31, 2012, Daiwa Capital Markets America Holdings Inc., an affiliate of the Manager, Adviser and DSTC, owned no shares. As of October 31, 2012, based on publicly available Schedule 13D and 13G disclosures filed with the Securities and Exchange Commission, 1607 Capital Partners, LLC held 15.11% and Lazard Asset Management LLC held 15.38% of the shares outstanding, respectively.

6. Discount Management Program

On May 17, 2012, the Fund announced that the Board had approved a Discount Management Program. The Discount Management program authorizes management, from time to time and to the extent permitted by law, to repurchase up to 10% of the Fund's outstanding shares in open market transactions for each twelve-month period ended October 31. Such purchases will be made when the Fund's shares are trading at a discount to NAV of 9% or more and the only daily average discount from the Fund's NAV for the five-day period ending the prior day is 9% or more.

The Board authorized the Discount Management Program in order to potentially enhance share liquidity and increase shareholder value through the potential accretive impact of the purchases to the Fund's NAV. There is no assurance that the Fund will purchase shares in any specific amounts. 146,379 shares were repurchased by the Fund pursuant to the Discount Management Program during the year ended October 31, 2012.

7. Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU"), Disclosures about Offsetting Assets and Liabilities. The amendments in this update require an entity to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective during interim or annual reporting periods beginning on or after January 1, 2013. Management is currently evaluating the implications of this ASU and its impact on the financial statements has not been determined.

The Japan Equity Fund, Inc.

Notes to Financial Statements (concluded)

8. Subsequent Events

On December 21, 2012, a dividend was announced by the Fund. The distribution of $0.064553 per share is payable on January 11, 2013, to shareholders of record at the close of business on December 31, 2012. The ex-dividend date is December 27, 2012.

Management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the Financial Statements were issued. Based on this evaluation, no additional disclosures and/or adjustments were required to the Financial Statements as of October 31, 2012.

The Japan Equity Fund, Inc.

Financial Highlights

(a)  Based on average shares outstanding.

(b)  Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions.

Amounts listed as "—" are $0 or round to $0.

See Notes to Financial Statements.

The Japan Equity Fund, Inc.

Report of Independent Registered Public Accounting Firm

To the Shareholders and
Board of Directors of
The Japan Equity Fund, Inc.:

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Japan Equity Fund, Inc. (the "Fund") at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, New York
December 21, 2012

The Japan Equity Fund, Inc.

Tax Information (unaudited)

The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise you as to the federal tax status of any distributions received by you during such fiscal year.

On December 21, 2012, the Fund announced a total distribution of $0.064553 per share which represents a dividend from ordinary income.

There is no foreign tax deduction or credit available to shareholders for calendar year 2012.

The information reported herein may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2012. The information necessary to complete your income tax returns will be included with your Form 1099-DIV to be received under separate cover in January 2013.

Shareholders are strongly advised to consult their own tax advisors with respect to the tax consequences of their investment in the Fund.

The Japan Equity Fund, Inc.

Information Concerning Directors and Officers (unaudited)

The following table sets forth information concerning each of the Directors and Officers of the Fund. The Directors of the Fund will serve for terms expiring on the date of subsequent Annual Meetings of Stockholders in the year 2015 for Class I Directors, 2013 for Class II Directors and 2014 for Class III Directors, or until their successors are duly elected and qualified.

The Japan Equity Fund, Inc.

Information Concerning Directors and Officers (unaudited) (continued)