c.2013 New York Times News Service

c.2013 New York Times News Service

HONG KONG — Nearly a year after Japanese people began to hope that their economy could turn around under new leadership, a sense of realism is replacing the euphoria.

Economists and investors have grasped just how difficult it will be for Prime Minister Shinzo Abe to sustain the growth of the past few months. Nowhere is that sentiment more evident than the Japanese stock market. The Nikkei 225 index is now nearly 40 percent above where it started the year, but the gains during the past four months have been slight — just 3.4 percent.

The economic recovery Abe engineered during the past year has been remarkable given the decades Japan in which languished. Buoyed by a big pickup in public works spending and a Bank of Japan policy of flooding the economy with low-interest money, growth has accelerated markedly. Deflation, the country’s biggest economic problem, seems to have disappeared.

The Japanese central bank said Thursday that it now expected the economy to expand 1.5 percent in the year starting next April, up from a previous forecast of 1.3 percent.

The yen, whose persistent strength weighed on Japan’s important export sector for years, has fallen more than 20 percent against the dollar over the past year, making Japanese goods more competitive in comparison with those of their rivals from South Korea and elsewhere.

For many ordinary Japanese and small businesses, however, the benefits so far are less tangible.

“Nothing has changed,” said Ryuichi Mizukami, a clerk at a nearby camera and photo shop. “Sales are about the same as last year. Prices are the same. We don’t feel any Abenomics effect here yet.”

Looking ahead, economists say some of the hardest work remains to be done. Japan’s leaders still have not taken on the far-reaching structural changes to make the country’s businesses more competitive. The economists worry that without reform, Japan could slide back into the deflation mode that had dogged it for more than a decade.

Nicknamed the “third arrow” of Abe’s economic policy, these include efforts to make the labor market more flexible, improve productivity in the service sector and bring more women into the workforce. Under a growth strategy laid out in June, Abe also set the goal of creating special economic zones that would relax some regulation and attract foreign investors.

Many of the plans laid out in June, however, lack detail and risk being watered down, analysts said.