Japan. I continue to believe that many analysts completely misunderstand the Japanese economy and what Abenomics is trying to achieve. Obviously everyone agrees the need to end deflation which is primarily what Abenomics is about. But the key statistic in measuring deflation is not the CPI or any other measurement of prices but rather nominal GDP. To understand this point, let us look at a history of Japan's nominal GDP. This peaked in 1997 (!) at Y524tr, the year Japan went into its deflationary spiral and fell to Y499tr in 2003, a decline of almost 5% (real GDP rose by just over 2% in the same period, meaning that prices fell by 7% in total). It then recovered to Y513tr in 2007 but following the financial crisis fell to Y471tr in 2009. It has subsequently recovered back to Y499tr but it is still 5% below its 1997 peak. What this means is that money incomes in Japan were 5% lower in 2015 than they were 18 years previously. One can argue that this does not matter given real incomes were 11% higher but that ignores the rising real debt burden, a problem aggravated by deflation. There is a pressing need for Japan to raise the level of nominal GDP, and this is ultimately what Abenomics is all about. And the truth is that Abenomics is having some success in this with nominal GDP rising by 5% over the last 3 years. Given that the underlying trend in real GDP growth is c0.5% and with an inflation target of 2%, one would be looking for 8% growth in nominal GDP but at least there is some progress. Where I think Japan has not succeeded is in increasing inflationary expectations, something that economists are paying more attention to. Inflation might rise for a bit but if consumers do not believe it to be permanent, they will assume that falling prices will resume eventually. Listening to the pronouncements of many Japanese officials, one gets the feeling that their heart is not in Abenomics and that they are itching to abandon the policy and return to one of monetary conservatism. The recent rise in the yen is symptomatic of such thinking. Overall, most people remain somewhat bearish to downright bearish on Japan. There are certainly many headwinds, most notably demographics and deflation. The decline in working population is currently subtracting up to 1% off GDP growth. The real debt burden will increase as prices fall. There are some positives however. Abenomics is certainly the way Japan needs to go. The fall in the exchange rate from 80Y to 120Y to the $ was a move in the right direction. Nominal GDP is rising. The performance of Japanese small company funds is encouraging. The stockmarket is relatively cheap. And perhaps one can argue that whilst Japan may not be that encouraging in an absolute sense, it looks better value than most others.