The frog in the boiling water.

• Author: Wood, Barry D.
• Position: LETTER FROM JAPAN

Recent visitor Martin Feldstein of Harvard University observed that "Japan is a mixture of prosperity and failure, and its prosperity makes its failures harder to address." That conundrum rings true as Japan struggles to free itself from nearly a quarter-century of stagnation and deflation.

Nearly four years after the arrival of Abenomics' three arrows--fiscal and monetary easing and structural reform--the economic data remain perverse. In July, the International Monetary Fund marked down its GDP growth forecast for Japan to 0.3 percent for 2016 and 0.1 percent for 2017. An Asahi business survey depicts an economy that is standing still. And despite three years of recovery into 2016, the Nikkei 225 languishes at 16,300, 58 percent below its December 1989 bubble peak.

It was in February 2013 that Prime Minister Shinzo Abe declared in Washington that, "Japan is back." It is an assertion possibly as hollow as Harvard Professor Ezra Vogel's 1979 prediction in Japan as Number One, that Japan's GDP would surpass that of the United States. (Today the U.S. GDP is nearly four times the size of Japan's, $18 trillion versus $4.8 trillion.)

As Feldstein suggests, the prosperity observed by a casual visitor masks a more disturbing reality. Randall Jones, head of the Japan desk at the OECD, argues that Japanese living standards are falling with per capita incomes 10 percent below the level of 1990. Because of a rapidly aging population, the labor force is shrinking and productivity is low. Jones argues that the economy is so constrained that its growth potential is below 2 percent. Japan's population has dropped by one million in the past five years and demographers say that trend will continue.

During my visit, I've encountered few analysts who are optimistic. However, "Mr. Yen," former vicefinance minister Eisuke Sakakibara, is upbeat. Animated and forthright in his book-filled study in an Ark Hills Tower, Sakakibara asks a visitor, "What's the problem?" He rejects the notion that Japan has endured lost decades and adds, "I don't worry about the deflation." Neither does he worry about government debt, which Japanese households continue to buy.

Now a professor at Tokyo's Aoyama Gakuin University, the 75-year-old Sakakibara argues, "Japan has matured." Growth rates that he puts at a 4 percent-plus average from 1974 to 1990 are no more, but he finds the 0.9 percent average that has prevailed since not a problem.

Calling Abenomics a success in its first...