“The scandal is a serious threat to Abenomics because the approval rate fell even before important reforms were implemented,” said Kohei Iwahara, economist at Natixis Japan Securities. “The government needs a high approval rate from the citizens to implement the necessary reforms, which could inflict pains to its citizens through job losses.”

Indeed, Abe now has less ability to move controversial structural reforms — known as the Third Arrow — through the political process, explained Tobias Harris, Japan vice president at Teneo Intelligence.

“Strong public support gave Abe political capital with which to pursue controversial reforms, but it also made him reluctant to use his political capital lest he risk his public support. Now, with his support falling, it’s that much harder for Abe to take risky policy decisions.”

Key reforms still pending include changes in the labor market to increase wages and social security incentives to boost female participation in the work force.

As of late, “the Third Arrow has run out of steam with no major reforms on the agenda,” Capital Economics said. “As such, while we don’t have high hopes for structural reform if Mr. Abe stays in office, nor do we if he were to leave.”

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