"I hope you enjoyed your short, but well earned Christmas break.

"Re: inflation and Japan:
It seems very plausible that in a world of high inflation, Japan would experience positive but low inflation which would be good for the stock market.

"What concerns and interests me though is that inflation, especially if it did not remain at very low levels, could come as a big shock to a country that has experienced mildly declining prices for the last two decades. Yes, the stock market would probably go up, but hardly anyone is invested in it so few would feel the benefits. Wages would be unlikely to go up, at least initially, so workers and retirees alike would experience a decline in living standards. I expect we would get more senior citizens postponing retirement or returning to the workforce (trends already in motion) which could be a positive thing given Japan's demographic problems. We may also hear more stories of hungry pensioners turning to crime or freezing to death because they can't pay their bills. That would not make the government very popular. Inflation could of course be positive for property prices, but I doubt if many people would be able to afford a new home (at current prices) if mortgage rates went from under 3 percent to say 7 or 8 percent.

"With a debt to GDP ratio of 200 percent, inflation would in theory ease the burden, but I also wonder how the government would manage to meet interest payments if inflation were to rise substantially (surely not impossible at some future date). Of course QE could be used to keep interest rates down in the short term but that would only add to inflationary pressures in the long term. Catch 22.

"There could be any number of "unforeseen" outcomes when we do finally get some significant inflation in Japan and I suspect (mere speculation on my part) that the conservative BOJ are well aware of this and are thus reluctant to adopt a more aggressive monetary policy for fear of venturing into the unknown. Whereas people often point to Germany's experience with hyper-inflation as a reason for that country's cautious approach to policies that could lead to inflation it is often forgotten that Japan had a more recent brush with hyper-inflation in 1945 when prices rose 568%. I doubt if anything similar is around the corner, but it might help explain why Japan is in no hurry to exit the deflationary (and for many people, comfortable) status quo.

David Fuller's view Thank you so much for this most informative email. Your analysis and conclusions make sense to me.

I have learned a lot from the Collective of Subscribers since this service became interactive, and I appreciate your insights.