"I found your recollections of Japan during the "bubble" era very interesting and would love to hear more (a chapter in a future autobiography perhaps?).

"The Bloomberg article highlights a number of important social issues in Japan, but I think it is going too far to blame them for Japan's prolonged economic slump. The truth is surely more simple: as you have often stated, the inevitable downturn after the excesses of the Eighties was exacerbated firstly by BOJ policy and later by poor political governance. Demographic issues may have been a contributory factor, but probably not to the extent that many believe.

"Firstly, although Japan may have a diminishing pool of youth to draw upon, unemployment has never risen much above 5% so unlike some countries that have proportionally larger youth populations, Japanese young people are mostly employed and contributing to tax revenues rather then collecting unemployment benefits.

"Secondly, there has been a big increase in the number of women in the workforce and although a lot more needs to be done with regard to gender equality, conditions and attitudes have improved, albeit gradually, in the last 20 years or so. I know a number of very successful women including my boss who would feel hurt that foreigner observers see them as victims, treated as second class citizens.

"The third factor that negates the need for mass immigration or forcing people to have more babies is the potential for a huge pool of retirees to return to work or delay retirement. The work ethic is very strong in Japan: people like to work and it is not uncommon to see people in their seventies or even eighties still working hard. I doubt if there will be any legislation to raise the retirement age, but it will surely happen anyway. It is becoming increasingly clear that we cannot expect Japan's politicians to come up with any sensible solutions to deal with the massive government debt and it is probably too late anyway. The debt probably can't be repaid; it can't be openly defaulted upon and bond yields can't be allowed to rise too far above current levels without causing a collapse in government finances. The only logical conclusion is that at some point the BOJ, probably strong armed by the politicians, will have to engage in a much larger QE program (as you have often pointed out) to simultaneously inflate away debt, weaken the yen, and keep bond yields low like the Fed and the BOE are doing." Captive" banks, insurance companies and pension funds may help out. With retirement income and savings depleted by inflation, a lot of retirees will have no choice but to work. Hopefully, those who are unable to do so will be looked after by their families.

"Obviously, a lot of this is just speculation on my part, but I am thinking how to invest and trade accordingly if things turn out this way. Do you think the BOJ will be able to keep yields low or will they fail, providing opportunities for shorting JGBs? Or would it be a better bet to focus on shorting the yen (if so in which currencies?) or going long the stock market?

"As always, thank you for Fullermoney which I can't imagine being without."

David Fuller's view Thank you for your kind remarks and another extremely informative email. Your perspective and articulate notes on Japan continue to inform us, and are much appreciated. Among future books of interest, your own journal on life and experiences in Japan would certainly be of interest to me.

On demographics, your point about the relative merits of low unemployment is certainly sound, and in stark contrast with the social problems encountered in so many other countries due to the paucity of jobs and therefore career opportunities. I have been impressed by the Japanese work ethic and where unemployment is low, grey power is surely a valuable resource. However, even a modern industrialised economy must reach a point where a declining population seriously begins to cannibalise GDP growth. And grey power presumably offers a diminishing return in more physically taxing professions such as farming.

From your perspective, I would be interested to know how you assess Japanese attitudes towards economic immigrants. This gets into an interesting realm concerning the advantages versus disadvantages of homogeneous populations.

I am interested to hear of "a big increase in the number of women in the workforce", and not just in minor roles. Presumably there is a 'needs must' aspect to this in addition to improving attitudes towards gender equality.

Needless to say your concluding questions have proved challenging for strategists for many years, myself included, but here are my hunches. I do not think that the BoJ will be able to keep JGB yields near current levels without continued deflation. They have now introduced a modest inflation target, albeit under duress, of 1 percent and the 10-year yield could double while remaining in the current range since 1998. Higher yields and a weaker yen may coincide, as could an eventual stock market recovery worthy of that description. Currencies against which the yen most needs to weaken, I suggest are the USD and CNY. Other cross-rates may outperform when the next significant phase of presumably BoJ instigated yen weakness occurs, and price charts would help you to identify them.

My guess is that we will eventually see a grand conjunction in which JGB yields rise, the yen weakens and the stock market gains, all in response to a fundamental shift in BoJ policy, of both word and deed. If so, there would be opportunities in all three markets but tactics would also be more challenging (herding three cats instead of one). From an investment perspective, particularly if hedging against yen weakness was regarded as less crucial for someone living permanently in Japan; my first priority would be investing in higher yielding Japanese exporters - ideally, Autonomies.