Japanese Economy Falls Into Recession; 1.6% Contraction Reported In 3rd Quarter

Japan reported Monday it fell into recession in the third quarter and an increase in the sales tax was being blamed. The economy shrank 1.6 percent July through September, the Cabinet office reported.

Economists surveyed by Bloomberg had expected 2.2 percent growth while those surveyed by the Wall Street Journal had forecast 2.25 percent growth. The Daily Yomiuri said private economists had expected a 2 percent increase to be reported.

The report marked the second quarter of contraction. The economy shrank 7.3 percent in the April-to-June quarter. Japan's sales tax has increased to 8 percent April 1 from 5 percent and is scheduled to go to 10 percent next October.

“Japan is in recession -- was pushed into recession by the VAT [value added tax] hike,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co. in Tokyo, told Bloomberg Television. “Delay in the VAT hike is now a virtual certainty.”

Akira Emi, president of Ride On Express Co., Japan's biggest sushi delivery chain, urged the government to delay implementation of the second phase of the VAT increase.

“Rather than letting the Japanese economy stall by raising the sales tax again, it would be a better idea to wait for about a year until domestic demand recovers,” Emi told the Journal.

The Financial Times said Monday's report could prompt Prime Minister Shinzo Abe to call snap elections.