Japanese Prime Minister Shinzo Abe was able to claim some quick victories after he launched his “Abenomics” economic strategy three and a half years ago. The combination of government spending, monetary easing and promised reforms hastened a decline in the value of the yen, helping exporters. The stock market began surging, and spurts of growth appeared as the economy started to recover from a recession that began before Abe took office. Consumers also stepped up purchases to beat a sales tax hike in 2014.

But those early gains are about all Abenomics has accomplished — at least so far. Promises to “drill down into the bedrock” of the structural obstacles to growth and productivity have fizzled, and ordinary folks have yet to see real gains in wages that would justify stepping up spending in times of uncertainty, and rising costs for health care and retirement. Meanwhile, even these early gains have been eroding: The yen has strengthened 17.3% against the U.S. dollar since May 2015 after weakening 35.3% from early 2013 to May 2015. The benchmark Nikkei 225 stock index fell by 21.14 % from June 24, 2015 to Sept. 15 after gaining 95.61% between early 2013 and June 24, 2015.

Japan watchers and economists concur on the prescription for sustained growth: a hefty dose of deregulation and structural reform to cope with its growing public debt, and the shrinking and aging of the population. But Abe is failing to deliver on his ambitious pledges of such sweeping reforms. “Abe stimulated the economy a bit and achieved a weaker yen and higher share prices, but now the yen is strengthening and stock prices are coming down. We are back to where we used to be,” says Yasuo Kofuji, a finance professor at Senshu University.

Given the steadily declining population, Japan needs a nominal growth rate of at least 3% to 4% to make up for the shrinking labor force and rising social services burden posed by a growing pool of pensioners. “We have to do something about this and implement structural reforms to ensure long-term stable economic growth,” Kofuji says. He and most other analysts agree that even if Japan opened its doors much wider to immigration, it could not achieve the pace of growth needed.

Oddly enough, foreign observers seem more disappointed with Abe than the domestic public. That’s largely because even though the economy is sluggish, it is still growing, albeit at a snail’s pace. While a growing poor of part-time and contract workers struggle on meager salaries and minimal benefits, for most Japanese, lifestyles remain stable. And after two decades of stagnation, most Japanese have very low expectations, especially of their political leadership.

“From a domestic perspective, (Abenomics) has been pretty successful compared to the economic policy beforehand,” says Martin Schulz, a senior economist at the Fujitsu Research Institute in Tokyo. He notes that most Japanese, having grown accustomed to prices remaining flat or barely rising, never wanted to see the central bank hit the 2% inflation target that Abe and Bank of Japan governor Haruhiko Kuroda said was needed to get consumers to loosen their purse strings.

“Instead of a big ‘arrow’ of sweeping reforms … changes in Japan are bound to be more akin to ‘small needles at all levels.’” –Martin Schulz

International investors, on the other hand, were persuaded by the hype surrounding Abenomics and puzzled by the lack of progress. “International financial markets are disappointed because the promise of Abenomics and initial gains of stock prices have not been supported by the success of additional economic growth,” Schulz says.

Japan’s recovery has been hindered, also, by weaker-than-expected exports since much of the country’s manufacturing capacity is already based overseas, and China’s slowdown has proven more severe than anticipated. Growth remained so weak by mid-year that Abe put off, for the second time, a hike in the sales tax that many observers say Japan needs to clean up its national finances: At about 250% of GDP, the country’s public debt is the biggest among OECD countries. The most recent tax hike, to the current 8% from 5%, in April 2014, pushed the economy back into recession.

Postponing the tax hike due for April 2017 to October 2019, helped Abe’s Liberal Democratic Party in a July parliamentary election, though the lack of a credible opposition challenge was likely the bigger factor. But confidence in Abe’s policies has wavered, especially since the Bank of Japan took the unprecedented step of imposing a negative interest rate.

With that, Abe alienated one of his key economic constituencies: the financial institutions that are a key pillar of the economy. Banks, insurers and other institutional investors have weathered a protracted spell of near-zero interest rates by shifting investments overseas or into riskier, higher-yielding assets. But the “negative interest rate policy” seems to have pushed them beyond their limits, says Franklin Allen, an emeritus professor of finance at Wharton and a professor of finance and economics at Imperial College in London.

Japan may prove to be a textbook example of the limits of financial and monetary stimulus to foster sustained growth when other key ingredients such as rising productivity, population growth and significant technological innovation are missing. Ever since the country’s financial bubble collapsed in the early 1990s, the government has sought to spend its way into boom times, with scant success.

“On the fiscal side, Japan has been trying to do this for over 25 years and it has never worked. It never got back to normality. All it has done is push up the debt hugely,” says Allen. He is skeptical about the potential of limited proposed reforms, such as in labor regulations, to spark faster growth. “The structural reforms such as labor market reforms, increasing female participation in the workforce and so forth that they are going to do, will have basically no effect.”

“I would [raise interest rates] with a 25-basis-point increase every six months or every year, so that … firms would have to start competing to pay interest on debt, loans and dividends.”–Franklin Allen

Throwing in the towel obviously is not an option for Kuroda, who insists he will do whatever it takes for as long as it takes to achieve the BOJ’s 2% inflation target. Weak crude oil prices have sapped the consumer price index of its upward momentum, with inflation falling 0.5% in July from a year earlier, the fifth-straight month of declines. After the BOJ conducted comprehensive assessment of its stimulus program, most economists were expecting fresh stimulus moves from a Sept. 20 and 21 policy board meeting, on top of the central bank’s 80 trillion yen a year of asset purchases and other policies meant to combat deflation.

What the Bank of Japan decided to do was to introduce an interest-rate target for 10-year government bonds around of 0.0%, aimed at exceeding its 2% inflation target. Instead of focusing on the monetary base (or volume of money in circulation) the bank is shifting back toward a rate-oriented policy, which targets both the short- and long-ends of the yield curve, or the difference between rates paid on bonds with short-term and long-term maturities. The BOJ maintained its -0.1% negative interest rate and kept unchanged its target of buying ¥80 trillion of Japanese government bonds a year.

Ever since taking the reins at the BOJ in 2013, Kuroda has been lobbying the government and tight-fisted corporations to do their part to boost growth. But in a September 5 speech, Kuroda hinted at his readiness to ease monetary policy further, using “existing or new tools.” He also acknowledged the adverse impact of negative interest rates but said there was room for further monetary easing.

Masaaki Kanno, senior economist at JPMorgan Securities Japan, forecasted that the BOJ would not only cut its policy rate to minus 30 basis points from present minus 10 basis points on September 21, but also that it would increase the monetary base to 90 trillion yen from 80 trillion and J-REITs to 200 billion yen from current 90 billion yen. Kanno said after the BOJ announcement: “Although the BOJ maintains its commitment to achieve 2% inflation at the earliest possible time, today’s decision suggested that the BOJ is not so serious to achieve 2% inflation rate so soon. If the Bank should be serious to achieve 2% inflation target sooner rather than later, the BoJ could have eased … including the rate cut.”

Looking beyond the BOJ’s strategy, Abe announced in December 2015 the latest iteration of his policies, dubbed “Abenomics 2.0,” offering three new policy “arrows” to buttress the earlier ones of fiscal stimulus, monetary easing and reforms. He pledged to achieve a nominal 600 trillion yen GDP for Japan in 2020, up from 491 trillion yen in fiscal year 2014 and to raise the birth rate to 1.80 per woman from the current 1.4 to prevent the population from sinking below 100 million from the current 127 million. Abe promised the government would improve elder care so that no workers would need to leave their jobs to care for aging parents. He also pledged to improve pay and other employment conditions for workers in the childcare and elder care industries.

To achieve his goal of a 600 trillion yen economy by early 2020 would require nominal annual economic growth averaging more than 3% and real economic growth of over 2% over the next five years. Put simply, short of a miracle such targets are beyond reach, economists say. “We expect 0.6% economic growth in 2016 and 0.2% economic growth in 2017 after 0.5% growth in 2015,” says Hiroshi Shiraishi, a senior economist at BNP Paribas Securities (Japan) Ltd. Those forecasts fall short of the Japanese government’s forecast for 1.7% growth in real terms and 3.1% nominal growth in this fiscal year, which will end on March 31, 2017. The economy grew at a 0.7 annualized pace in April-June.

Abe’s latest effort to rekindle growth came in the form of a 28.1 trillion yen spending package announced in July, of which only 7.5 trillion yen is new spending, with 4.6 trillion yen budgeted for the current fiscal year, according to economists. That proposed extraordinary budget is due for parliamentary approval sometime this month. “The real focus is now shifted to fiscal policy from monetary policy,” Schulz says.

The more likely scenario is that, barring a monumental crisis that shocks the nation out of its complacency, Japan will continue to muddle through.

The back-and-forth between monetary and fiscal policy means “Abenomics is just going around in circles,” says Hideo Kumano, chief economist at Dai-ichi Life Research Institute Inc., a unit of major Japanese life insurer, Dai-ichi Life. Instead, the government needs to get serious about changing an employment system, set up in the post-war era of fast growth and low unemployment, that has left nearly 40% of all workers stuck in relatively low-paid part-time or temporary jobs. Such workers generally have little to no savings and simply cannot afford to get married and have a baby. That keeps the birthrate low and discourages consumer spending, which drives more than 60% of Japan’s economic activity.

One of the biggest bottlenecks to growth is reluctance by Japanese corporations to invest in their relatively stagnant home market. Instead of putting their cash piles into new factories or higher wages, big corporations like Softbank and Komatsu Ltd. are investing heavily in overseas operations and buying up foreign assets.

The BOJ has sought to encourage more investment at home by offering highly favorable lending facilities to companies that toe the line. But overall, base wages have remained mostly flat, apart from some modest increases in hourly pay for contract workers. As companies cut back on pensions and the government forces a growing share of health care costs onto consumers, most families are saving what little extra income they may get.

Allen says if he were to run the economy, he would raise interest rates. “I would do it with a 25-basis-point increase every six months or every year, so that the financial sector could get back to some kind of normality and firms would have to start competing to pay interest on debt, loans and dividends.” But other economists say Japan can scarcely afford to increase interest rates given the massive size of the public debt. Just paying interest on the debt consumes 43% of government tax revenue now, at a time when interest rates are at rock bottom.

The more likely scenario is that, barring a monumental crisis that shocks the nation out of its complacency, Japan will continue to muddle through, with occasional flurries of attempts at reform that fail to make much headway. The vested interests that dominate industries across the board, from agriculture to medicine to financial services, have proven fiendishly capable of blocking challenges to their control. That has hindered progress toward improving productivity, as has under-investment in education and training.

“From the beginning, there was a lot of noise about structural reforms, but that’s normal in Japan, as every five years there is a wave of such moves toward reform,” says Schulz of Fujitsu Research Institute. “This creates a big hype internationally, where everyone is waiting for Japan to regain its former strength.” Instead of a big “arrow” of sweeping reforms, as Abe promised early on, he adds, changes in Japan are bound to be more akin to “small needles at all levels.”