Fears that Shinzo Abe's plans for the Japanese economy are running out of steam were stoked today by news that Japanese industrial output rose just 0.5 per cent in May, less that the 0.9 per cent rise that many were expecting.
The figures were better than those posted for April, when output declined 2.8 per cent, but were still considered underwhelming.
The low numbers have not come in isolation either, with consumer price inflation somnolent in May at 1.4 per cent. Although data showed a 3.4 per cent rise, figures included a sales tax hike and are therefore distorted.
Abenomics initially seemed to be working with his first two arrows - loose monetary policy and strong fiscal stimulus - providing the economy with a substantial boost. The third arrow of structural reforms has yet to be loosed in earnest.
The initial impact of Abenomics has been strong but appears to be waning. The third arrow of Abenomics—structural reforms—is essential for Japan to avoid the risk of falling back into lower growth and deflation, a further deterioration in the fiscal situation, and an over-reliance on monetary stimulus, with negative consequences for the region.