Last week the Tokyo stock market had two days in which the benchmark Topix index fell by more than 5%.  For the week as a whole, the market declined by 12.5% (the quirky Nikkei 225, the Japanese equivalent of the Dow, fell by 11%).

This has little to do with worries about the oil price or about a global economic slowdown, in my view.  This is all about Abenomics.

The three “arrows” rhetoric aside, the idea behind Abenomics has been to create extraordinary short-term economic stimulus in Japan through huge depreciation of the currency, large increases in government deficit spending and a big expansion of the money supply.

It has been clear from the outset that all three of these actions will leave deep permanent scars on the Japanese economic landscape.  However, their purpose has been to buy time and space for export-oriented Japanese industry to restructure and modernize.  That would, in turn, allow these firms to hire more workers and increase wages for all.  In the eyes of Abe boosters, the benefits brought by a revitalized industrial base would more than offset the body blows caused by depreciation, inflation and an increase in already gargantuan outstanding government debt.

It has also been clear that Abenomics can’t take infinite time to work. Shock-and-awe stimulus is temporary; waves of it are progressively less effective.  Theory and practical experience both say that without substantive changes an economy tends to revert to its previous torpid state after a few years   …except there’s higher inflation.

In Japan’s case, industry hasn’t voluntarily restructured.  Government continues to protect recalcitrant corporate managements from outsiders skillful enough, wealthy enough and willing enough to take on the modernizing task.  So far, then, Abenomics has all been jam tomorrow, as Lewis Carroll put it.

Since the beginning of this month, early in the fourth year since the launch of Abenomics, the yen has risen by about 7% against the US$, 8% against the renminbi and about half that against the €.

This strength is a bit surprising, since it comes immediately after further stimulus by the Bank of Japan in the form of negative interest rates.  Investors in Tokyo are reading the currency strength as the first sign that the window of opportunity for Abenomics to succeed is starting to close.

I’m not sure this interpretation is completely correct.  But, having been an Abenomics skeptic from day one, I won’t argue that it’s wrong, either.

For people like me, who continue to watch from the sidelines, Japan is important to the rest of the world as a tourist destination, but mostly as a cautionary tale about the limits of monetary policy and the dangers of special interest politics determined to defend the status quo.