A deflationary horror story

So you are  prudent Japanese saver and have carefully invested your savings in shares for the past 25 years and now you find yourself, admittedly after receiving a small earn from dividends, with exactly the amount of money you contributed. It's the kind of record that should be frightening Americans when they read the Nobel prize winning economist Paul Krugman writing that as the core rate of inflation in the US is now clearly below 1 percent; it’s not hard to see Japan-style deflation emerging if the economy stays weak. The danger of a lost decade, writes Krugman on his New York Times blog, remains quite real.

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That blue line at the bottom is the Japanese Nikkei 225 Index from 1985 onwards tells part of the deflationary story and a depressing one it is. Not that the British (the FTSE is the red line)or American (the S&P 500 is in purple) experience for share buyers has been all that flash over the last decade either. They have essentially been profitless markets since the late 1990s as well. By comparison investors in the Australian market have only had four years of a stagnant ASX All Ordinaries index (the green line).