Is the €-area in 2014 like Japan on the dawn of deflation?

If you are impatient and somewhat trust my judgment, let me give first my synthetic answer to the title question: out of the five criteria I use to compare the current situation in the €-area to that in Japan at the end of the ´90s, two (current situation of the banking sector and inflationary expectations) do not indicate that the €-area is in a better position than Japan when it was about to enter its deflationary period. On one other criterion (central bank activism) there is a slight advantage for the ECB. On the two last criteria (the prospective cleaning up of the banking sector and demography) the situation in the € area is clearly better than it was in Japan. Overall, my sense is that, in particular taking into account the recent hesitations of the ECB to confront too low inflation, confirmed in the last press conference, and the now weakly anchoring of inflationary expectations, one cannot exclude a significant risk of Japanification for the €-area.

Should the European Central Bank do more and go negative?

The European Central Bank is torn between those who say that it is already doing too much, mostly in Germany, and those who say it should do more. One of the actions the ECB should pursue, in the opinion of the latter group, is to bring the deposit rate into negative territory. 

Draghi is dancing on the brink of a further rate reduction.

While Bernanke has started his difficult footwork towards the exit, Draghi has engaged in a minuet of his own to signal that the exit is far into the future and that indeed further ease could come. The ranking of the FED and the ECB in terms of monetary policy ease has changed, or at least is changing, with interesting possible consequences for exchange markets. Factor in Kuroda and Carney for some further entertainment coming from central banks in the foreseeable future.