Japan Unexpectedly Enters Recession as Abe Weighs Tax: Economy.

http://www.bloomberg.com/news/2014-11-16/japan-s-economy-unexpectedly-contracts-as-abe-weighs-tax-delay.html

Japan unexpectedly sank into a recession last quarter as the world’s third-largest economy struggled to shake off the impact of an April sales-tax boost, raising the odds of a delay in a second bump in the levy.

Gross domestic product shrank an annualized 1.6 percent in the three months through September, a second straight drop -- matching the textbook definition of a recession. Unadjusted for price changes, the economy contracted an annualized 3 percent, the Cabinet Office said. Japanese stocks slumped.

“No part of Japan’s economy looks encouraging,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, who had the weakest forecast in a Bloomberg News survey, with a 0.8% growth estimate for real GDP. “Today’s data will leave another traumatic memory for Japanese politicians about sales tax hikes.”

For Prime Minister Shinzo Abe, the report probably guarantees he will put off the tax increase scheduled for October 2015, a move that people familiar with the matter have said will trigger a snap election next month. Japan also tipped into a recession after a 1997 consumption-levy rise, leading to the fall of the government of the day.

Abe today told reporters that the GDP figures weren’t good and that he’d decide on next year’s sales tax after careful analysis.

While exports and consumer spending returned to gains last quarter, they weren’t strong enough to offset the impact of a slump in the stocks of unsold goods -- a sign that companies were unwilling to boost production. Residential investment was another soft spot, while government spending had a positive impact on GDP.

Recession Blight

Nominal GDP, which is unadjusted for price changes, also shrank a second straight period, at least the fifth such recession in the past decade. The level, which is most important when considering tax revenue or corporate profits, is 7.9 percent below the peak reached in 1997, according to data compiled by Bloomberg.

Living Costs

While the pace of consumer-price gains is running about 1 percent, that still amounts to a sea-change for households accustomed to modest deflation for about 15 years. The 3 percentage-point increase in the sales tax in April also pushed up the cost of living. With inflation outpacing wage growth, a further bump in the levy risked hurting consumption and undermining Abe’s support.

The median forecast for annualized real growth last quarter was 2.2 percent. The median estimate for nominal GDP was for a 0.4 percent advance.

Further Stimulus

A group of LDP lawmakers who want to delay the next bump in the sales levy estimate the government could have as much as 4.6 trillion yen available for economic stimulus if it doesn’t increase the sales tax next year.

Pedestrians walk through the Shinsekai shopping district in Osaka. Japan’s economy grew at the fastest pace since 2011 in the first three months of this year, an annualized 5.9 percent gain, driven by spending that was frontloaded before an April 1 sales-tax increase.

Pedestrians and shoppers walk along a street in the Ginza district of Tokyo, Japan. Excluding bonuses and overtime, pay increased 0.7 percent, the most since March 2000.