The world’s third-largest economy contracted 1.6 per cent while forecasts had predicted growth of 2.1 per cent, according to official figures. The economy shrunk 0.4 per cent quarter-on-quarter on an annualised basis.
It's the second consecutive quarter of contraction in the Japanese economy, which signalls a recession. Figures for the previous quarter of a 7.1 per cent fall in GDP were also revised down further to a fall of 7.3 per cent.
A sales tax hike pencilled in for October 2015 is now likely to be off the cards, according to analysts. It looks increasingly likely Prime Minister Shinzo Abe will call a snap election to gain a new mandate to delay the tax hike which was agreed by the previous government in 2012.
An increase in sales tax from 5 per cent to 8 per cent was implemented in April, contributing to the economic slowdown.
“The October 2015 sales tax hike must be off the table now, politically; that means the pretence that tax hikes can close the huge gap between government revenue and expenditure is exposed; and as such the Bank Of Japan are effectively covering a vast fiscal deficit with their QQE with no end in sight,” said Rabobank’s Michael Every.
The Nikkei fell 1.4 per cent in the first 30 minutes of trading and closed three per cent down.