Last year saw the Nikkei 225 and Topix indices surge ahead, posting gains of 26.9 per cent and 24.67 per cent respectively, only being outperformed by the US market, as the S&P 500 index delivered a return of 29.1 per cent in 2013.

But the year-to-date performance for 2014 is less promising, with the Nikkei 225 posting a loss to April 9 of 10.68 per cent, while the Topix index is down 8.98 per cent, as the effects of the first two arrows of Mr Abe’s reforms start to wear off.

Clearly the situation in Japan is improving. Inflation is near the 1 per cent mark and growth is positive, but as the manager of Canada Life Investments’ Japan fund, Alex Lee, points out, moving from the deflationary mindset of the past two decades “is not something you flick a switch on overnight”.

While markets are focusing more on Japan, optimism within the country is starting to fade, made worse, in part, by the perception that the Bank of Japan is not doing enough to support the economy. Expectations of monetary easing in April, following the hike in consumption tax from 5 per cent to 8 per cent at the start of this month, were squashed as the Bank made no change to its policy.

Gautam Batra, investment strategist at Signia Wealth, points out: “The markets expected to see the Bank of Japan accelerate its quantitative easing plans, but it’s clear that the governor is stuck in wait-and-see mode, watchful of the impact of April’s hike in consumption tax. It now looks unlikely we will see any policy changes until the next inflation report in July.

“Haruhiko Kuroda clearly believes that sticking to the current 2 per cent inflation target will bolster the central bank’s credibility and that staying the course will give it a better chance of meeting that target. The Japanese yen has already strengthened and may see further gains, but the stockmarket struggles while investors await further details on prime minister Abe’s stalled drive for reform, referred to as the ‘third arrow’.”

While there are suggestions the Bank’s patience is a barrier against over aggressive monetary policy, some warn of the dangers of waiting too long.

Nancy Curtin, chief investment officer of Close Brothers Asset Management, adds: “The Bank of Japan’s wait-and-see approach to the impact of the consumption tax risks it falling further behind the ball. Last time the tax was raised in 1997, it helped knock more than 1 per cent from the quarter’s GDP figure alone. A repeat performance would provide real cause for concern.

“Economic indicators have already been softening, with little evidence to suggest momentum has been built this year. With consumption tax now being felt on top of this and the ‘third arrow’ of structural reform being implemented sluggishly, Q2’s GDP figures will make for difficult reading without further decisive action. Realistically, we were unlikely to see steps towards boosting QE before the Bank’s economic outlook at the end of April, but any significant delay in providing additional support measures might prove costly in the longer term.”

Nyree Stewart is features editor at Investment Adviser