Asia Economy
Japan fell into recession in third quarter of 2014
By Michael Hennigan, Finfacts founder and editor
Nov 17, 2014 - 4:32 AM

Shinzo Abe, Japan's prime minister, receives a cool welcome from Xi Jinping, Chinese president, Beijing, Nov 10, 2014.

Japan's economy unexpectedly slipped into recession in the July-September quarter, government data showed Monday - a development that is likely to result in Shinzo Abe, prime minister, delaying the second planned hike in sales taxes.

Gross domestic product (GDP) contracted an annualized real 1.6% in the third quarter, following a revised 7.3% plunge in April-June, the Cabinet Office said in a preliminary report.

The GDP fall corresponded to a 0.4% dip on the quarter and it reflected the continuing fallout from last April's sales tax hike from 5% to 8%.

The weak data will make opposition parties “raise their voice, saying ‘Abenomics was a failure,’ ” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co according to The Wall Street Journal. “People in the market may harbor doubts about policy continuity and confidence in the government.”

Indeed, after the release of the data, Yukio Edano, secretary-general of the main opposition Democratic Party of Japan, said, “The economic policy of the past two years may have been effective in pushing up share prices, but it was not in turning around the real economy. We can say with confidence that Abenomics has reached its limit.”

Following the release of the GDP report, the yen/US dollar rate fell to 117 - its highest in seven years before rising to 115.7.

Earlier this month the Bank of Japan raised the planned amount of quantitative easing/ bond buying to boost markets

Private consumption grew an annualized 1.5% in Q3 after a drop of 18.6% in the second quarter while exports were weak in the quarter growing 1.3% quarter-on-quarter and imports also rose.