Japan's stock market has fallen 15 percent from its May high. Does that mean Abenomics, the plan for monetary and fiscal stimulus launched by Prime Minister Shinzo Abe, is dead? Hardly: Since the start of the year, the market is still up 31 percent.

There's a better reason to be skeptical about Abenomics. The program so far has concentrated on boosting demand. That's necessary, to be sure, but it addresses only one of Japan's problems.

Japan has endured two decades of deflation -- a clear sign of persistently inadequate demand. Its national income in nominal terms is actually less than it was in 1994. To most economists, this suggests that the macroeconomic stimulus in Abenomics was long overdue.

Yet shortfalls in demand by themselves don't explain Japan's stagnant productivity. Its manufacturing, non-manufacturing and agricultural sectors are all no more productive than they were in 1991 in terms of "total-factor productivity." This measure has risen by 50 percent in the U.S. over the same period -- see the graphs at the end of this report by Takeo Hoshi and Anil K. Kashyap.

There's no shortage of supply-side factors that might account for this terrible productivity performance. Large state-protected corporations, or "keiretsu," block innovation and creative destruction. The industrial policies that seemed successful in the 1980s have gone belly-up. An elderly population drags resources out of faster-growth sectors. Its massive agricultural subsidy programs, which dwarf the U.S.'s, insulate unproductive farmers. Its land-use laws tangle urban development and shield inefficiently small farms from competition.

Abenomics promises a "third arrow" of supply-side reform, alongside the monetary and fiscal arrows. Abe himself has pledged to reduce the corporate tax rate, and he created an "Industrial Competitiveness Council" in January that has put forward many policy ideas. They include the creation of special economic zones in urban areas, participation in talks for a Trans-Pacific Partnership trade agreement and a change in labor-market policy to reduce "job lock."

These are good ideas, but they aren't enough. The entrenched interests that lobbied for protections have mostly been spared. For one, Abenomics pays off, rather than challenges, Japan's powerful farm lobby. A genuine structural reform would be aiming to cut farm subsidies and deregulate land.

Hoshi's and Kashyap's report offers other options for industrial reform. They want Abe to make starting a business easier, end credit subsidies to "zombie" firms and scrap a regulatory system that encourages micromanagement. Abe has shown little interest in going so far. The "third arrow" is already veering off-target: As Bloomberg View columnist William Pesek writes, Abe now seems to be playing for time on structural reform.

The demand-side part of Abenomics is already in force. Even if the supply-side program turns out to be ambitious, it will be slower-acting than the monetary and fiscal stimulus. Abenomics is therefore going to test the theory that lack of demand has been Japan's main problem. If the stimulus causes inflation without doing much to boost growth, we'll know the theory was wrong.

(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)