THERE are several reasons why. Mr Abe has spent political capital freely on causes that he believes are important for Japan but that are unloved by the public, such as peeling back constitutional limits on the military and restarting nuclear power plants idled after the 2011 Fukushima meltdown.

A bigger reason, though, may be dissatisfaction with Mr Abe’s economic policies — previously his greatest political asset. Even before a jarring 6.8pc annualised contraction in second-quarter gross domestic product was confirmed by government data this month, doubts were growing about the premier’s campaign to stimulate growth.

The normally Abe-supporting Sankei newspaper declared a ‘shadow’ over Abenomics in July, after its pollsters found more people disapproved of the government’s handing of the economy than approved. In multiple opinion surveys, Mr Abe’s overall support stands at less than 50pc, down sharply from the 70-plus per cent ratings he enjoyed for most of his first year in office.

“Abenomics is in trouble,” says Robert Feldman, chief Japan economist at Morgan Stanley MUFG, who points to a loss of confidence among investors as well as the general public. Although some economic indicators have started pointing upward after the bruising second quarter, “the pace is too slow to warrant hope of a sharp rebound”, he worries.

“Abenomics is in trouble,” says Robert Feldman, chief Japan economist at Morgan Stanley MUFG. Although some economic indicators have started pointing upward after the bruising second quarter, “the pace is too slow to warrant hope of a sharp rebound”, he worries.

The most commonly heard question about Abenomics used to be whether Mr Abe could carry out growth- enhancing structural reforms — the so-called third arrow of his three-point revival strategy. It still has not been answered: the record so far looks like a mix of achievements, compromises and missed opportunities.

Now scepticism is being trained on what was thought to be Abenomics’ core competency: goosing the economy through fiscal and, especially, monetary stimulus.

The problem is not so much the latest GDP data — a downturn had been universally expected due to an increase in the national sales tax that took effect on April 1. And while the contraction was bigger than experts had initially predicted, so was the surge in economic activity in the quarter before the rise. Essentially, a lot of people moved their spending forward to beat the deadline.

More troubling is a broader economic picture that has some people raising concerns about stagflation. Once the tax-related GDP gyrations are averaged out, the economy experienced virtually zero real growth between mid-2013 and mid-2014. Meanwhile, aggressive monetary stimulus from the Bank of Japan has stoked inflation. Despite a slight pick-up in wages in June, a larger increase in prices meant that real incomes were 3.2pc below what they were a year earlier.

Even Abenomics’ sponsors admit things are not going exactly to plan. Inflation per se is not what bothers them, since escaping persistent consumer price declines was a central goal of their strategy.

But the virtuous circle of ‘good’ inflation that they promised, with price rises feeding through to comparable increases in incomes, has looked distinctly lopsided, with a bulge on the prices side that is making people poorer.

Haruhiko Kuroda, the BoJ governor, addressed the issue at a meeting of central bankers in Jackson Hole, Wyoming recently. He called the failure of wages to be swept up in his monetary deluge ‘a troublesome problem’ and said Japan was only ‘halfway’ to beating deflation. But he predicted incomes would catch up once businesses and workers came to accept rising prices as Japan’s new normal.

“Once the bank has succeeded in firmly anchoring inflation expectations at 2pc, this could provide the basis on which wage negotiations between management and labour are conducted,” he said. On that view, Abenomics is simply passing through an awkward adolescence — but one that even Mr Kuroda conceded might persist for ‘some time’.

Certainly, the softness in wages looks like a mystery. Corporate profits are at record highs and Japan is in effect at full employment, with joblessness comfortably under 4pc — ideal conditions in which to demand higher pay. Yet while economists expect incomes to pick up, structural issues could limit how far they rise.

“Labour market dynamics appear to have changed in Japan since the current recovery began around November 2012,” says Kyohei Morita, an economist at Barclays. “In part, this is a matter of demographics.”

In short: baby boomers are retiring and taking the best-paid jobs with them. Their replacements are far more likely be part-timers, contractors or other lower-wage workers, including their own offspring. A wave of mothers born during the baby-boom ‘echo’ is re-entering the workforce, mostly for less pay, as their youngest children reach school age.

Such shifts are creating a paradox in which the pay of those in work is rising across the economy yet average incomes are stagnant because the highest-paid jobs are disappearing.

Structural changes are impeding Abenomics elsewhere. Giving big exporters such as Toyota and Sony a competitive boost by weakening the yen used to be a reliable way to stimulate Japan’s economy, but a decline of more than 20pc in the currency under Mr Abe has not done the trick this time round.

That is in part because Japan became a net importer after Fukushima, owing to increased purchases of foreign oil and gas. But exports have not grown as expected either. Many believe that is because companies make more of their products outside Japan — in the case of carmakers, for instance, foreign production volume has risen by 80pc since the last comparable period of yen weakness almost a decade ago, while domestic output has declined.

Three arrows, six obstacles

Why Abenomics has run out of gas

• A sales tax rise in April shook the economy as people rushed to spend money before it took effect. Both the pre-increase lift to GDP and the subsequent crash were bigger than the last time Japan raised the tax, in 1997. In the end, Japan’s economy in mid-2014 was barely bigger than it was a year earlier.

• A huge ramp-up in monetary stimulus from the Bank of Japan has stoked price increases. Japan was stuck in deflation for well over a decade, so that should be good news — except that wages have not kept pace, making people poorer. There are signs that pay increases are starting to accelerate, but higher taxes make it harder to close the gap.

• The yen’s value has fallen by about 20pc under Shinzo Abe. Devaluing the yen was once a surefire way to boost Japan’s export-geared economy, but today things are different. Japan became a net importer after the Fukushima nuclear accident in 2011, owing to increased purchases of foreign oil and gas. A weaker yen has made the trade deficit bigger, not smaller.

*. A bigger import bill is not the only problem. Exports have not grown as expected in response to the yen’s decline, and some analysts think a fundamental shift in Japan’s manufacturing sector is to blame. Companies make more of their products outside Japan than they did during the last comparable period of yen weakness nearly a decade ago.

• One problem Japanese businesses do not have is a lack of cash. Retained earnings have soared since the late 1990s to more than 60pc of GDP. Convincing companies to part with that treasure in ways that would stimulate the economy — by investing it, paying workers more or handing it over to shareholders — has been a challenge.

*. The BoJ argues that deflation will not be comfortably beaten until core consumer prices are rising by about 2pc annually, something it predicts will happen in the next year or so. The central bank has done a better job at lifting prices than many economists initially expected, but the market consensus is still more pessimistic.

Published in Dawn, Economic & Business, September 1st, 2014