Japanese third quarter economic contraction more than expected

The Japanese economic contraction in its third quarter (July through September) was much more than expected.

The revised data released on Monday revealed that the tax hike that was put into effect in April had a much bigger hit than predicted.

The revised report revealed that the country experienced annualized 1.9 percent contraction, more than a preliminary 1.6 percent fall.

Takeshi Minami, chief economist at Norinchukin Research Institute, told Reuters:

“The data confirmed a two straight quarter of recession so this is a harsh evidence for Abenomics,”

“Tame growth in wages in particular are likely to drag on private consumption and the broader economic activity.”

The third largest economy in the world fell into a recession. It is expected to post a rebound this quarter though.

The Japanese Cabinet Office data showed that the economy fell 0.5 percent in July-September on a quarter-to-quarter basis. This is a much higher drop than the median market forecast, of only a 0.1 percent drop.

What really drove this fall was the 0.4 percent decline in capital expenditure, revised from a preliminary 0.2 percent fall.

Earlier this year Japanese sales tax rose from 5 percent to 8 percent. This appears to have had a big hit on household spending and has resulted in the economy falling into a recession.

Abe has postponed the second tax hike, from 8 percent to 10 percent, until April 2017. This decision will prevent consumer spending from falling further. In Japan consumer spending accounts for roughly 60 percent of GDP.

The revised GDP results is going to be bad news for the Bank of Japan. The central bank eased policy on October 31, it is believed that it will keep monetary settings unchanged and remain optimistic about the economy.

Most economists expect the Japanese economy to post moderate growth this quarter as there are signs that corporate and household spending is beginning to recover.