- Marcel Thieliant of Capital Economic
Japan's economy contracted more than previously estimated, giving the government more reasons to proceed with the plan to delay the next sales tax hike and hold an early election. The nation's economy shrank 1.9% in annual terms in the third quarter, according to revised data, which underlined that the hit from April's sales tax increase turned out to be more devastating than expected. On a quarter-to-quarter basis, the Japanese economy contracted 0.5% in the July-September period, compared with a preliminary estimate of a 0.4% slowdown. The world's third-largest economy technically remains in recession, marked by two quarters in a row of GDP contraction. The revision was largely a result of declining capital expenditure, which fell 0.4% down from a preliminary 0.2% drop. The revised GDP data could be negative news for the Bank of Japan, which will examine it and other factors at a two-day policy meeting that ends on Friday. The central bank, which unexpectedly eased policy on October 31, is widely anticipated to keep monetary settings on hold and maintain its sanguine outlook of the economy. Meanwhile, economists project Japan to resume moderate growth in the current quarter amid signs corporate and household spending are gradually recovering from the pain caused by the April tax hike. Last month, Prime Minister Shinzo Abe decided to postpone a scheduled increase in the tax to 10% that was due to take place in 2015, putting it off until April 2017.
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