Japan 8217 s recession worse than thought

Japan’s third quarter recession was deeper than what was initially estimated.

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By :  ,  Financial Analyst

The contraction in Japan's economy during the third quarter of 2014 was deeper than what was estimated, according to revised figures released today (December 8th). The country's economy shrank an annualised 1.9 per cent between July and September, instead of  a previous estimation of 1.6 per cent. It also shrank 0.5 per cent on a quarterly basis, compared with an initial estimate of 0.4 per cent, data revealed.

Analysts blamed a surprise decline in business investment, a big fall in business spending and a sales tax increase from five to eight per cent in April for the economy's plunge into a deeper recession.

The weak data had led Prime Minister Shinzo Abe to call a snap election last month with a view to delaying an increase in the sales tax to ten per cent, scheduled for 2015. Media polls predict a landslide victory for his coalition.

Since the release of the revised figures, critics have been vocal about the failure of "Abenomics", which combines aggressive monetary expansion, fiscal stimulus and structural reforms designed to revive the economy and end years of stagnation.

"The bankruptcy of ‘Abenomics’ is clear to everyone’s eyes," said Tetsuro Fukuyama, policy chief of the main opposition Democratic party of Japan, in a statement after the GDP release. "Abenomics has brought about excessive yen weakening and bad inflation, hurt households and stalled consumption."

After the first report that Japan entered recession in Q3, Moody’s Investors Service cut its rating of Japan’s bonds by one level to A1.

According to Reuters, many economists expect Japan to resume moderate growth this quarter on signs corporate and household spending are recovering from the tax hike.

Asian shares were mostly lower today after the release of the worse-than-expected data. MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.2 per cent, while the Nikkei 225 edged up 0.1 per cent.

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