One indicator which has made a clear turnaround is the 20-year cycle of deflation in Japan.  In a country with a social contract to preserve employment, deflation is devastating to corporate profits.

In the early 1990s, then Bank of Japan Governor Mieno was determined to force corporate restructuring in the wake of the collapse of housing and stock prices.  He deliberately maintained interest rates above a rapidly declining rate of inflation, and in our opinion, brought about the subsequent persistent period of falling prices.

Mieno’s policies were exactly the opposite of those pursued by Ben Bernanke 15 years later, and the consequences were also reversed.  Savers in Japan were rewarded by falling prices and the rising purchasing power of cash, government bonds and the ever-strengthening yen.  By contrast, stock investors in Japan were the unfortunate recipients of a simultaneous decline in both earnings and valuations.  Since 2008, the Federal Reserve’s determination not to repeat what they saw as a disastrous policy to repeat Japan’s mistakes has led to cash savers falling victim to rising prices, and stock investors enjoying a vigorous bull market driven by low interest rates and record corporate profits and profit margins.  We believe that Japan is set on a very different course today: one that favors stock investors over holders of cash, just as corporate costs are declining and profits are rebounding.  Hence, our bullishness on Japanese stocks.

David Fuller's view

Here is The Weekly View.

I certainly agree with Rod Smyth and if there was ever ‘a picture worth a million words’, look at his Weekly Chart: The End of the Era of Deflation In Japan.

Japan’s Nikkei 225 Index remains on course for a secular bull market, in my opinion.  In the short to medium term, I expect NKY to encounter resistance in the region of its highs seen earlier this year.  A consolidation of gains will follow, probably mostly above 20000, before the bull market continues in 2016.