Soon after Shinzo Abe, who practiced archery in his college days, returned for his second stint as Japan’s prime minister in late 2012, he promised to unleash “three arrows” to fix the economy.

It was a reference to an old Japanese proverb that while one arrow alone can be easily snapped, three together are impossible to break.

Abe, who is on leave from his role as president of the All Japan Archery Federation, was sending a message: Japan needs a multi-pronged strategy to emerge from two decades of economic stagnation and falling prices. But almost two years on, his Abenomics strategy is looking more like dozens of tiny darts rather than three unbreakable arrows. At absolute levels, Japan’s economy, the world’s third largest, is doing better than it has for some time. And it needs an upturn: Japan’s population is both shrinking and aging rapidly, raising the prospect that the country could simply run out of workers.

But the latest statistics have made for grim reading: In the second quarter, the economy shrank at an annual rate of 7.1 percent — the worst performance since early 2009, at the height of the global financial crisis. Though it has bounced back some since then, that hardly suggests a strong recovery.

On Friday, Japan’s cabinet office downgraded its assessment of the economy, saying that although it continued to improve slowly, “weakness can be seen in some areas,” Jiji Press reported.

Japanese Prime Minister Shinzo Abe delivers a speech in Tokyo on September 19, 2014. The nation downgraded its assessment of the economy for the first time in five months, as a string of weak data hammers hopes for a quick recovery following Tokyo's April sales tax hike. (Yoshikazu Tsuno/AFP/Getty Images)

And although the yen has weakened to six-year lows against the dollar, which should theoretically help exporters such as Toyota and Sony, this hasn’t come through in the numbers. Indeed, Sony warned this past week that it would record a loss of $2 billion this year, canceling dividend payments for the first time since it was listed on the Tokyo Stock Exchange in 1958.

“Colossal Catastrophe in Japan's Economy!” the Weekly Gendai, a tabloid, screamed after the second-quarter numbers came out. “Rapid Economic Spiral Back to Deflation!”

Analysts have been less hyperbolic but certainly concerned.

“I’m definitely worried about the economy,” said Izumi Devalier, a Japan economist at HSBC. “Households are feeling poorer.” To make matters worse, Abe now has to decide whether to go ahead with another increase in the consumption tax, which would double to 10 percent within 18 months.

The first increase — a three-point rise to 8 percent, which came into effect in April — has been blamed for the sudden slump in the economy over the past few months.

Another two-point increase is planned for October of next year, but going ahead with it could make Japanese shoppers, already wary, put their pocketbooks away.

“Eight percent seems only a small rise from 5 percent, only three points, so things sort of feel the same as when it was 5 percent,” said Nobuko Maeda, a 46-year-old office clerk at a marketing company, although she confessed to sticker shock at the counter.

“But it’d be double at 10 percent, and that would be felt strongly,” said Maeda, who was having lunch in the park with a colleague in the Tokyo district of Shinagawa on a recent day.

Polls have shown that about two-thirds of Japanese are against the second-round tax hike.

With a decision due in the next couple of months, Abe said he would wait for data from the current quarter before deciding whether to press ahead.

“The economy is a living thing, and we are thinking about this in a neutral way,” Abe told the broadcaster NHK in an interview last weekend. “We would like to get economic indicators from the [third] quarter and hear the views of economists,” he said. “As part of that process, we’ll decide whether to proceed with the tax hike as now set by law or whether to wait. That’s the discussion we need to have.”

Peter Tasker, a veteran analyst of Japan’s economy and a strong supporter of Abe’s economic policies, said it would be “idiotic” for the prime minister to go ahead with the second tax increase.

Now is the time for Japan to finally escape its years of stagnation, he said. “They made a big mistake in raising this tax, and it’s cost them a lot of traction.”

Out in the real economy, it certainly feels that way.

Takahiro Ogawa, the vice president of a small construction company based in Kamakura, south of Tokyo, said two tax increases in quick succession would be too much.

“It’s not great that taxes go up so quickly in such a short period of time,” he said while working at a building site in Shinagawa.

“I wish the government would make sure that the economic climate was really picking up,” he said. “The situation at major companies might be getting better, but for small to medium companies like ours, it’s still tough.”

The three arrows

What will Abe do?

Economics has never been his forte, and he is seen as something of a consensus merchant who doesn’t have the steel to contradict the powerful bureaucrats in the Finance Ministry who want consumption taxes raised. (Outsiders such as the International Monetary Fund and the ratings agencies are also pushing for the tax hikes.)

Abe also has to navigate a deep split within his ruling Liberal Democratic Party.

One wing of the party worries about Japan’s enormous national debt — at more than double GDP, it is among the largest in the developed world — and supports an austerity approach.

But another faction is more concerned with getting the economy going again, figuring the deficit will fix itself if Japan is flourishing.

Abe’s attempts to strike a compromise have made it appear, as some critics put it, that he is putting on the economic brakes and stepping on the accelerator at the same time.

He has pressed ahead with a much more aggressive monetary policy (the first arrow) and a huge amount of initial spending, although belt-tightening is coming (the second arrow). But the third arrow — the structural reform needed to lift Japan’s long-term growth rate — is by far the most important, and the most difficult. The third arrow aims to sharpen Japan’s competitiveness and productivity through a variety of measures: improving corporate governance practices, increasing the number of women in the workplace, and liberalizing trade, among other moves.

There is also a planned cut to the corporate tax rate, but Tasker said it would be unwise to cut taxes for business while raising them for consumers. “That’s not a particularly strong electoral proposition,” he said.

Many market economists continue to think that Abe will press ahead with the tax increase, although they say he’s likely to try to soften the blow by, for example, unleashing some new stimulus. Or, he could delay the second round, which Devalier of HSBC thinks is the best option.

That could enable Abe to still hit the target, even if he doesn’t get a bull’s-eye.

Yuki Oda contributed to this report.