Japan's economy sank into recession in the third quarter, figures showed Monday, making it almost inevitable that Prime Minister Shinzo Abe will delay a fresh sales tax rise and call a snap election to fend off party rivals.
Abe's two-year premiership has largely focused on breathing life into an economy plagued by years of deflation, and getting a handle on Japan's soaring national debt, AFP reported.
Raising sales taxes are key to tackling that debt, but a levy increase in April – Japan's first in 17 years – knocked consumers off their feet, as Abe's approval ratings suffer and he spends political capital trying to restart Japan's nuclear reactors and bolstering the role of the military.
"It now looks likely that Abe will call off the hike and announce snap elections," said Marcel Thieliant from Capital Economics.
Gross domestic product shrank 0.4 percent in the third quarter, or at an annualized rate of 1.6 percent, underscoring how the tax rise stalled Abe's
program to turn around the long struggling economy.
Markets
The market's median expectation was for a 0.5 percent expansion, according to economists surveyed by the leading Nikkei business daily.
Residential investment fell, as consumer and corporate spending remained tepid. Exports were in positive territory, but shipments of cars and
televisions were not enough.
The dismal reading for the world's number three economy may cloud the global outlook as Abe returns from a G20 meeting in Brisbane where leaders representing the bulk of the global economy pledged Sunday to try lift their collective growth by an extra 2.1 percent by 2018.
Snap Elections
Speculation has been swirling that Abe – who faces a leadership election next year – will delay increasing Japan's sales tax to 10 percent, after the rise to 8.0 percent from 5.0 percent in April.
The economy suffered a revised 1.9 percent contraction in the April-June quarter – or 7.3 percent at an annualized rate – reversing a 1.6 percent expansion in the first quarter when hopes for Abe's growth plan, dubbed "Abenomics", were still buoyant.
The economy was last in recession when Abe swept to power in late 2012.
"Any further tax increases are out of the question. It's impossible," Etsuro Honda, a close adviser to Abe and one of the growth policy's main architects, told the Wall Street Journal, adding that Tokyo should launch a 3.0 trillion yen economic stimulus package.
Last month, the Bank of Japan expanded its already huge monetary easing program, but the latest figures will lead to talk of further central bank measures to counter the downturn.
Still, economy minister Akira Amari noted that Japan's economy expanded 0.5 percent in the first nine months of the year.
"We can't just simply summarize (the data) with the word 'recession'," he said.
