Japan’s bright prospects

In 2005, the Nikkei equity index shot ahead by 40% while 10-year Japanese government bond yields inched higher by just 15bp.

One is wrong. Either equity investors have become too exuberant about the economy’s recovery and the prospects for sparkling corporate profits to justify punchy valuations, or bond investors have failed to price in the shift from an era of deflation to one of inflation and higher rates to come.

In January, the Livedoor scandal hinted that it is equity investors who have got ahead of themselves.