Japan Falls Into Recession

GDP Declines 1.6%, Setting Stage for Delay in Sales-Tax Increase.

Japan’s economy shrank for a second quarter in a row, after a sales-tax increase took the steam out of Prime Minister Shinzo Abe ’s bid to turn Japan into a global model of revival.

Mr. Abe, who has sought to revive the world’s third-largest economy after two mostly sluggish decades, is set to announce this week that he will delay plans to raise the nation’s sales tax next year and call elections in December.

The prime minister hopes that delaying the tax increase, along with the Bank of Japan’s move on Oct. 31 to pump tens of billions of dollars of cash into the economy, will keep so-called Abenomics humming, said advisers.

But the growth figures released on Monday demonstrated the size of his challenge. Real gross domestic product fell 1.6% on an annualized basis in the July-September period, following a 7.3% contraction in the previous quarter. That means Japan met one definition of a recession: two consecutive quarters of contraction.

None of the 18 economists surveyed by The Wall Street Journal had forecast a contraction; the median forecast was for a 2.25% expansion.
For investors banking on more action from the European Central Bank, the Bank of Japan’s struggle to jumpstart the economy is a setback.

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. “People in the market may harbor doubts about policy continuity and confidence in the government.”

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