These kinds of measures should prove more effective, and safer, than fiscal stimulus. Japan's government debts are already more than twice its GDP, and continually tapping the bond market and spending the proceeds unproductively will ultimately prove problematic. Without more sustainable growth-generating measures, Japan risks an "Abegeddon" scenario – entrenched stagflation that prompts outflows of capital and a run on the government bond market.
The third arrow of Abenomics, reform, also requires redirection. First, Japan needs to ensure its businesses use its people properly. To do this it will need to address a rigidity that has led to the development of a 'dual' labor market. Around 40 percent of workers are now deemed 'temporary,' in jobs which provide low pay, a lack of social insurance, and little opportunity to develop skills.
Once in these non-regular jobs, securing regular employment is even more difficult – a mass waste of the potential of the Japanese labor force. Second, Japan should encourage its largest conglomerates to split. Japan has too many vast holding companies operating unprofitable non-core business lines. With inefficient businesses hidden in conglomerate accounts, it is not surprising that Japan's returns on capital investment are the lowest of any major developed economy.
(Read more: Can Japan's rally continue without a third arrow?)
If Japan executes on these kinds of reforms, it may still need to lean on the Bank of Japan to boost growth. But it would be doing so from a much stronger position. Countries operating in competitive markets need to make their products as well, and as efficiently, as possible before slashing prices.
For investors, however, betting on this outcome is problematic. Politics tends to follow the path of least resistance, which in this case appears to be further monetary stimulus and an ever weaker yen. But it will not make for a strong Japan.
Alexander S. Friedman is the Global Chief Investment Officer of UBS Wealth Management and UBS Wealth Management Americas and is the Chair of the UBS Global Investment Committee. Kiran Ganesh is a cross-asset strategist at UBS Wealth Management.