In 2012 Japanese Prime Minister Shinzo Abe and the Bank of Japan (BOJ) embarked on an aggressive program of monetary and fiscal easing in an attempt to revive the stalled Japanese economy. Abe and his political allies quickly passed a $142 billion stimulus package, while the BOJ pledged to double the country’s monetary base by the end of 2014, buying $68 billion in government bonds each month. The bank also said that it would purchase real estate investment trusts and equities in the amount of $70 billion, with an eye towards boosting the country’s annual inflation rate to at least 2%.

The program encouraged a great deal of optimism, once again making Japan an attractive investment destination. The country’s benchmark equity index, the Nikkei 225, was one of the world’s top performers in 2013 as it gained 56.7% over the course of the year.

That initial enthusiasm has faded though, as Abe has struggle to implement the third arrow of his economic revitalization plan – meaningful reform. The first two arrows of fiscal stimulus and monetary easing struck true, but so far the reform arrow hasn’t just missed the mark, it really hasn’t even been loosed. Abe only just last month announced a program of 230 proposals addressing everything from labor regulations, pension fund investments, tax policies and corporate governance, and observers believe that few if any will take effect, make less make an impact. The Japanese bureaucracy, both in government and business, is notoriously resistant to change and isn’t widely expected to support the program.

On top of that, Japan is facing labor shortages as the country’s population continues to age and its birthrate remains low, further compounding its economic conundrum without meaningful measures to ensure gender equality and encourage the use of foreign labor.

Given that growing sense of pessimism, the Nikkei has fallen 5.6% so far this year and will likely continue drifting downward, I suspect.

Given that expectation, I am selling Daiwa Securities Group (Tokyo: 8601) from our portfolio.

One of Japan’s leading broker-dealers and diversified financial services firms, Daiwa Securities, has been benefiting from a growing Japanese interest in stocks rather than bonds, thanks to near-zero interest rates on bonds and the introduction of retirement savings accounts similar to American Individual Retirement Accounts.

Thanks to those developments, the company’s net income last fiscal year reached a record high for the first time in 25 years, rising to JPY169.4 billion for the year. Its retail and wholesale division both experienced revenue growth of more than 30%, while its asset management and investment divisions grew by 11.8% and 14.3%, respectively. Earnings per share for the year also more than doubled, rising from JPY43.00 in 2012 to JPY99.63 last year.

After that record-breaking year, though, it is unlikely that Daiwa posted a similarly strong performance in its first quarter, the results of which will be announced on July 29. Trading volumes in Tokyo have declined sharply so far this year, meaning Daiwa has almost certainly lost out on commissions and other trading revenues.

At the same time, the US dollar has significantly strengthened against the yen in recent months, presenting a headwind for US-based investors.

Without meaningful reforms to back up monetary and fiscal easing, I’m selling Daiwa Securities Group as the Japanese equity rally loses steam.