Japan contracts sharply as sales tax hits consumer spending

Japan suffered its worst economic contraction since the earthquake and tsunami more than three years ago after an increase in the national sales tax triggered a sharp fall in consumer spending in the second quarter.

The annualised 6.8 per cent decline in gross domestic product, reported by the government in a preliminary estimate yesterday, was a shade milder than the latest market forecasts but still far more severe than most experts had predicted when the tax rise took effect in April.

Its scale, and the fact that it was the first significant quarterly reversal since Shinzo Abe, the growth-pursuing prime minister, took office in late 2012, will embolden sceptics of Mr Abe's promise to rejuvenate Japan's economy with his stimulus-heavy programme of "Abenomics".

The gross domestic product decline mirrored a similar-sized jump during the first quarter, and optimists might still make the case that it was a statistical anomaly – a consequence of the 3 percentage point tax rise disrupting spending patterns among households and businesses. – Copyright The Financial Times Limited 2014