FT piece on what would happenif inflation were to hit Japan.

Japan and its weary investors have got used to year upon year of falling prices and virtually zero interest rates. So strange has the investment climate become that banks have recently taken to lending money to other banks at negative interest rates, literally paying them for the privilege of holding on to cash overnight.

Peter Tasker of Arcus Investment, a hedge fund, is mystified by the resilience of the bond market. "The bond market must fall if the Japanese economy recovers and normalises, maybe even if it doesn't," he says. "The bond yield is far lower than in any phase of human history, including the 1930s and the deflation of the 1880s."

As sure as eggs are eggs, says Mr Tasker, if the market becomes convinced that deflation can be halted, equities will rise and bonds will fall. Equities have a long way to recover. Just to get back to where they were when Mr Koizumi came to office in 2001, promising radical surgery and fiscal consolidation, the Nikkei 225 average would need to rise 70 per cent. At around 8,500, close to 20-year lows, the Nikkei is worth less than a fifth of its 1989 bubble high.

Ouch and we think we have problems...