Hans Redeker from Morgan Stanley said the “Japanisation effect” in Europe is having perverse effects. The fall in inflation is automatically raising real interest rates, tightening the vice further in a vicious circle. “Deflation accidents usually happen when things seem cosy for while and central banks do nothing. Europe is now in a deflationary equilibrium but this could turn bad if there is any outside shock. We think this could come from Asia, probably a credit squeeze by China’s central bank,” he said.