With business and consumer confidence up and the Nikkei 225 buoyant, Tokyo is buzzing about Bank of Japan tapering. BOJ Gov. Haruhiko Kuroda's historic gambit to corner the markets for bonds, stocks and public opinion, this argument goes, has run its course. Soon, he will follow the Federal Reserve in scrapping quantitative easing, cutting asset purchases and perhaps even pull off rate hike. The days of central banks dominating trading across investment classes is, after all, over. The yen, it follows, is sure to rise in 2017.

Then you look at Japan's latest data dump and realize how much wishful thinking is at play here. The good news: Consumer confidence in December rose to the highest level in three years. The bad: Aggregate consumer spending is still trending lower. What gives? The BOJ faces two problems. One, its policies stabilized business conditions but have so far failed to lift confidence enough to boost spending or wages. Two, the effects of the shrinking population are beginning to overwhelm Japan's policy tools. "Sentiment is not everything — you cannot spend it," says Carl Weinberg, chief economist at High Frequency Economics. "Demographics matter a lot. In fact, demographics in Japan matter more than anything else."

History may show that 2016 was a population-fallout inflection point for Japan. The United Kingdom, for example, is seeing sales momentum running ahead of real wages and incomes. In Germany, sales are growing amid flat consumer sentiment. Ditto for France. Growth in the United States is hastening even as President-elect Donald Trump claims households are miserable. The key difference between these Western powers and Japan is immigration flows and healthier demographics.