Consumers Still to Buy Into Abe's Economic Experiment
Six months into Japanese Prime Minister Shinzo Abe's economic experiment and the nation has seen an impressive rally in its stock market alongside a swift depreciation in the yen, which has its key export sector cheering.
But, skepticism is setting in among consumers in the world's third largest economy over Abe's radical policies and whether he will be able to successfully deliver on his promise to end two decades of economic stagnation and ignite inflation.
"What Abe is trying to do is admirable -you have to be forceful - but whether he can pull it through, that's another thing. I don't think it's going to be that easy going forward,"40-year-old Tomo Murakami, director of an advertising firm in Tokyo, told CNBC.
After delivering on his first two arrows,aggressive monetary easing aimed at beating deflation and fiscal spending, Abe unveiled his third arrow, or a long-term growth strategy on Wednesday in which he pledged to raise incomes by 3 percent annually over the next decade and set up special economic zones to attract foreign investment. But market watchers said the key now lies in implementation.
(Read More: Japan Fires 'Third Arrow,' Execution Now Key)
As a consumer, Murakami added one of his biggest concerns is the prospect of rising prices in Japan, given he has been accustomed to relatively stable prices over the past decade or more.
"I'm worried about rising prices. It's going to affect all aspects of life. Over the past 10-15 years, train fairs haven't gone up. Coffee prices in fact have come down," he said.
Consumer prices in Japan have started to tick higher, with Tokyo's consumer price index (CPI) for May, a leading indicator for nationwide inflation as it is released a month earlier, rising 0.1 percent month on month. Earlier this year, the Bank of Japan (BOJ) set a target to reach 2 percent inflation within two years.
(Read More: 'Abenomics' Success Hinges on Reforms: World Bank)
What is of pivotal importance, according to economists, is that wages begin to rise as the profitability of Japanese corporations begins to improve.
"People aren't running anywhere to buy anything because additional incentives are needed - they will come from summer bonuses. While the news has been positive, they don't have higher wages in hand so far," said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo.
For Japanese national Nicholas Shindo, the rapid depreciation in the yen - which has lost 29 percent against the U.S.dollar over the past six months - is a worry.
"I earn in yen, but I hold as little yen cash as possible - enough to live on. I started selling the yen when it went to about 80 and starting buying U.S. dollars and some commodity related currencies," said Shindo, an independent business consultant living in Tokyo, who is concerned the currency could depreciate further.
(Read More: Dollar-Yen at 89 by Year End?)
However, being an investor in the domestic equity market - which has gained 43 percent over the last six months - Shindo said he has benefiting from Abe's policies in some way.
"I do feel that I have more money potentially in my pocket. But my outlook remains cautious," Shindo said.Reflecting investor uncertainty over Abe's economic policies, Japan's Nikkei 225 has been mired by heavy selling recently,falling 15 percent over the past two weeks.
Volatility in Japanese government bond yields arising from the BOJ's unconventional monetary policy, for example,was one of the top concerns among investors.
Exporter Community Rejoices
In contrast to consumers who are yet to be completely sold on 'Abenomics,' Japanese nationals working in the export sector sounded a more optimistic tone.
Sixty-three-year-old Mamtani Manga, who runs his own textile export business from Osaka, said he is relieved by the steps taken to boost the economy, particularly the weakening of the yen.
"I'm 100 percent optimistic about the economic situation improving, but the government has to continue with its current policies," he said.
Manga, who said his business took a large hit when the yen strengthened to 76 against the U.S. dollar in 2011, is already turning around.
"I have to pay my bonuses in June.Normally I pay 2 months' salary, this time I announced I will pay 15 months'salary. It's the first time that I'm paying this much," Manga said.
However, Manga recognized that those outside the export sector may not be feeling quite as cheery.
"So far the benefit has just gone to the exporters, salaries are the same, there is no real change in domestic market so far," he said.
By CNBC's Ansuya Harjani