November 8, 2013

HAVING RECEIVED a strong mandate from Japan’s voters in mid-summer parliamentary elections, Prime Minister Shinzo Abe has reached a pivotal moment in what he has promised will be a transformative term.

Mr. Abe promised to shoot three powerful “arrows” to revive his country’s once-dynamic, now-moribund economy. His first two stimulus measures — massive monetary expansion and stepped-up government spending — are well underway. But they were also politically easy to launch because they required no short-term sacrifice from powerful special interests. The hard part was always Mr. Abe’s “third arrow,” structural reform, which would require him to cut away the tangled web of regulations, subsidies and trade restrictions that hinder growth and innovation.

Based on events this week, Mr. Abe will have to spend some serious political capital to make even modest progress in this regard. Even armed with a favorable ruling from Japan’s Supreme Court, he has shied from complete deregulation of online sales of over-the-counter medicines, which are fiercely opposed by the pharmacists’ lobby. Instead, the Abe government offered a watered-down proposal, justifying it on consumer safety grounds. The issue was important mainly as a symbolic test of the government’s ability to rein in special interests; a key government adviser, Internet entrepreneur Hiroshi Mikitani, threatened to quit and denounced Mr. Abe in uncharacteristically blunt terms, accusing him of going in “the exact opposite direction” of reform.

Meanwhile, Mr. Abe proposed a somewhat more ambitious plan to consolidate Japan’s notoriously inefficient rice farms and wean their aging operators from government subsidies. Under the plan, Japan would end production limits and cash payments by 2018, in what would be a crucial step toward opening one of the world’s most protected agricultural markets to greater international participation under the proposed Trans-Pacific Partnership trade agreement with the United States and others. Economists Takeo Hoshi, now at Stanford University, and Anil K. Kashyap of the University of Chicago have calculated that Japan’s farms got $53 billion in subsidies in 2010, an amount equal to the total value they added to the economy.

Even in this case, though, the full extent of Mr. Abe’s reformist ambition is not entirely clear. There is talk of a new subsidy for small farmers to offset the changes, kindling fears that Japan’s agricultural lobby, still a powerful force in Mr. Abe’s Liberal Democratic Party, may yet thwart him, at least in part.

Time is not necessarily on Mr. Abe’s side. As the initial impetus from monetary expansion and fiscal stimulus fades, Japan’s long-term viability will increasingly depend on the third arrow. Mr. Abe’s reforms faces powerful domestic opposition, but he must remember that if he’s afraid to go too far, he’ll probably end up not going far enough.