If there is some success in reducing deflation, this could have a dramatic effect. Some 56% of Japanese household assets are held in cash / deposits (USA 15%) and 10% in shares (USA 45%). Japanese pension funds are 88/12 bonds/equities. I previously have pointed out that Mr and Mrs Takahashi have no problem with safe cash which earns almost no interest, but benefits tax-free from deflation. But with, say, 1%-2% inflation, this could well change. Topix yields 2% and the new culture of rapidly jacking up dividends should continue. All this starts from the basis where price to cashflow and sales are still extraordinarily low (albeit 30%+ less so than when I wrote mid-year 2012 Strategy).

David Fuller's view Japan has not looked this interesting in over a generation. However, when it last looked promising in the 1980s, it was well on its way to forming one of the biggest bubbles in stock market history. Japan has not looked this cheap in over two generations.