THE Monday after the G-20 in Shanghai should have prompted a rally in global equities. Instead, we saw the Shanghai Composite drop more than 3 per cent. While the meeting clearly disappointed investors for its lack of an agreed coordinated policy response, it also highlighted the hard road ahead for finance ministers and central bankers to save the planet from a deflationary spiral and rapidly declining inflationary expectations.

In order to contain and understate what is clearly the macroeconomic issue of our time, most commentators speak of "disinflation". Perhaps it's time for us to acknowledge that "deflation" is here. Then only will policymakers make an attempt to reverse this worrying trend. Monetary policy has run its course, US$9 trillion of public sector debt has negative interest rates, China is slowing down faster than most banks will acknowledge and its excess capacity is now exporting deflation to the rest of Asia.

Let's recap what happened in the lead up to Japan's two lost decades and draw some parallels with what we are currently witnessing in China and indeed non-Japan Asia (NJA or Asia-ex).