The week began on a sour note, adding to last Friday’s 324-point selloff on the Dow as the 3:30 Club knocked another 115 points off the index today. The return of volatility has been a generally negative story for global risk assets, most of which are considerably down from where they were at the beginning of spring. The world’s safe havens are playing their time-honored roles in the investor pantomime, with gold prices at 12-month highs and U.S. Treasury yields at 12-month lows. Both the dollar and the yen are sharply higher versus the euro – in roughly equivalent amounts, in fact, as the current dollar/yen rate of 91 is roughly what it was at the beginning of the year.

The yen’s relative strength is not helping Japan’s fragile economic recovery to gain traction: capital expenditures are coming in lower than expected as businesses contemplate the effects of lower exports to Europe (currency and demand weakness) and China (where financial tightening is having a broader effect on spending activity). As the annual rainy season gets underway in Tokyo investor moods were likewise gray and dour with the Nikkei 225 registering a 3.8% drop to close at 9520.

The overarching narrative in financial markets has not really been focused on Japan, as other stories of more immediacy have crowded out precious front-page media real estate. Subprime mortgages in 2007, Wall Street’s fallen masters of the universe in ‘08, the recovery of ‘09 and now the EU debt crisis have been the successive stories of the day. THat may change, and in my own opinion there is a better-than-average probability that the $5 trillion economy with a debt/GDP ratio of 197%, chronic deflation and the worst demographic outlook of the developed world is going to have its day on center stage.

If nothing else Japan offers a sobering case study for equities market analysis. On December 31 1989 the Nikkei index reached its all-time high of just under 40,000. That was 21 years ago. Today the same Nikkei is valued at less than 25% of that high-water mark. That is an astounding data point. In the wake of the Great Depression and Second World War it took the U.S. stock market about 25 years to recover its high-point value of 1929, but by 1937 it had recovered about 50% of that value and survived the most turbulent crises of the 20th century before resuming its long-term upward climb. There is simply no precedent in modern securities markets for an economically mature country’s stock market to sustain as bleak a long-term picture as Japan’s does. “Stocks for the long term” is the investor’s mantra, but that mantra has one large glaring elephant in the room that cannot be ignored.

The curious case of Japan’s stock market is going to be the subject of an upcoming in-depth research piece. As for the remainder of this week, keep an eye on the bond market data points in Europe. Belgium had a rather flaccid auction of 10-year bonds that generated some market chatter about the “Greece of the north” – an unwelcome moniker to be sure. We’ve been talking about Hungary for some time now in our commentaries, and this week has Budapest back in the news. No rest for the weary indeed.