In many ways, Japan has been the forerunner of the U.S. and Europe, with an asset and property bubble-then-burst leading to years of slow growth and low inflation. So it will be interesting to see if Japan continues to be the 'canary in the mineshaft' going forward. Japan faces many of the same risks that other developed nations do but they are a few years further along, for one they owe a massive amount of money via issuance of government debt. 

Secondly, Japan faces significant demographic challenges - an aging population, low birthrate and a cultural opposition to immigration. These factors combined make it difficult for us to comprehend just how they are going to pay these debts in the future.

Japanese Demographics

We think that watching the Japanese economy will be your most useful economic guide over the next few months. If their experiments continue to be successful expect significant pressure around the world, particularly in Europe, to continue or expand loose money policies. On the other hand, if their policies begin to backfire - above target inflation in Japan, knock-on currency devaluations, a government debt crisis - it will force a reexamination of these policies, particularly in the U.S.

Please 'reply' to this email with thoughts and ideas. Feedback is appreciated.

Thank you for reading.

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