Contentious alarmism. The reliability of long-term demographic estimates is vanishingly low. So why does demographic gloom enjoy such currency now? There are three underlying reasons, we believe, for its popularity.

First, stocks have gone down since 1990. The extraordinary length of the Japanese bear market has provided fertile soil for the development of theories as to why this was inevitable.

Second, promotion of demographic scare stories absolves policy-makers of responsibility for Japan's economic record since the 1990s. There was, it appears to say, no alternative. In reality, of course, this is no more than a novel restatement of the traditional bureaucratic refrain that it cannot be they, but rather the people, who are at fault. At the same time, of course, a declared "crisis" validates yet further interference in ordinary people's lives.

Third, belief in demographic scare stories is uncomfortably close to the recurring theme that Japan is different only this time dressed up in quantitative clothes. Our experience is that every time such an assertion has been made, it has quickly been shown to be mis-guided.

Our advice to investors is to give up on things such as demographics about which very little can be known and to
concentrate instead on prosaic considerations such as valuation, sentiment and fundamentals.

Eoin Treacy's view Everyone seems to have an opinion on demographics in Japan, China, India, Europe, the USA or indeed just about everywhere else. Historic data is abundant, easily represented in graphic form and the underlying theory appears manageable. However, nothing is ever that simple and I have a knawing scepticism about the efficacy of drawing investment conclusions from demographic data. I find that I have a great deal of sympathy with Alexander Kinmont's emphasis on Total Factor Productivity (TFP).

I remember during my first trip to South Africa being bemused at the apparent futility of three men stripping plaster off of a low wall with flimsy paint strippers outside the dive shop. It took them three days to complete the task. On asking why they didn't simply use a hammer and chisel and finish the job in a couple of hours, it was explained to me that this way was providing more work for more people and spreading the benefit to more families. This was a clear example of underutilisation of potential productivity. Positive demographics offer an opportunity for growth, but unless adequate policies are put in place to maximise the workers productive capacity then demographics can as easily be a headwind as a tailwind. In the end, as we have said repeatedly, Governance is everything.

Japan remains one of the most technically proficient economies in the world and has been convalescing from its bubble for two decades. Japanese workers remain well educated and have access to cutting edge tools, information, research and management practices. The problems of the last two decades have not been helped by political and economic governance practices and these will need to improve if the economy is to successfully exit deflation