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'Abenomics' Success Hinges on Reforms: World Bank

Japanese Prime Minister Shinzo Abe's radical economic policies may have instilled confidence among investors, but structural reforms will be key going forward, according to the World Bank.

Liesel Bockl | Getty Images

Sri Mulyani Indrawati, managing director at World Bank said while "Abenomics" is bold and a change of policy from the past thus far, a "third arrow" from Abe will be equally important.

"[The government needs] to justify what you are doing by supporting your structural policies, in this case, and that will justify more or less what you are doing on this macro-policy front," Indrawati told CNBC in Japan.

Markets are awaiting Abe's "third arrow" next month, which is expected to be a broad overhaul of the economy with structural reforms to remove barriers to competition and investment. It will be the third part of "Abenomics" after easing monetary policy and increasing fiscal spending, which has led the benchmark stock index Nikkei 225 to surge 60 percent since mid-November, while the yen has weakened 25 percent.

"It is not just about defending [your policies] globally. But for the government, it needs to anchor the confidence that it has already created," Indrawati said.

(Read More: Japan's PM's 'Third Arrow' Reforms Seen Short of Overhaul)

She added that structural reforms are going to be the most difficult to implement on many different fronts.

"That is going to be the hardest politically, economically and socially, because it really hits the different interest groups in this economy," She said.

When asked if "Abenomics" could be viewed as just competitive devaluation unless we see structural reform in Japan, Indrawati said, "Definitely, yes."

Japan has faced criticism for introducing policies that have weakened its currency helping to increase the competitiveness of its exports.

By CNBC.com's Rajeshni Naidu-Ghelani. Follow her on Twitter @RajeshniNaidu.

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