The latest figures out Europe have been getting better. Let's hope it continues.
Nonetheless, the debate continues whether the European Central Bank (ECB) has done "too little too late" in terms of its trillion-euro quantitative easing program (QE) to avoid "Japanese-style" deflation. It is a debate that has raged ever since the U.S. Federal Reserve embarked on its own massive bond-buying program six years ago. Ever since, Japan's deflation has been cited as the reason to enact such extraordinary monetary measures.
However, deflation in Japan was not caused by lack of loose monetary policy. It was caused by various supply side issues. Nor is QE a cure for deflation. It is a temporary painkiller that should be used in the short term while otherwise difficult structural reforms are carried out. The fact that "short term" has become six years and counting in the US' and UK's fight against deflation underlines QE's shortcomings as a treatment on its own.
The biggest reason for Japan's current turmoil is its demographics. In fact, the make-up of a country's population is one of the most important top down factors for deciding whether a country can have a long-term, anti-cyclical, growth. Investors should invest in companies, not countries, but either way, a booming national economy cannot hurt.
The Japanese have compounded this issue over the last few decades due to their surprising commitment to long standing positions on immigration, labour reform and women in the work place. In 2013 men earned 132 percent more than women in Japan. In the US and UK that figure was still disappointing at just over 50 percent -- but much better than in Japan. The country's fertility rate has dropped from 1.8 children per women from 1980-85 to 1.4 from 2010-2015. France's, the UK's and the USA's readings were all higher in the first period, and have risen since then. Japan also has the biggest life expectancy at birth of the G-6, combine that with declining fertility and it's a pretty big headwind if you don't welcome workers from abroad. Take a look at the chart below - all of the G-6 have their work cut out - but none more so than Japan.