Japan’s economy slips into recession

Japan’s economy, the third largest in the world, has slipped into recession after shrinking for the second consecutive quarter. It’s gross domestic product fell by 1.6% between July and September, despite predictions that it would rise by 2.1%.

Japanese Prime Minister Shinzo Abe is now expected to call a snap election next month so as to be able to delay an increase in the sales tax to 10%, scheduled for October 2015. The sales tax was introduced by Japan’s previous government under former Prime Minister Yoshihiko Noda as a counter-measure to Japan’s public debt, the highest amongst developed nations.

“The Japanese economy is in recession and has now contracted in three of the alst four quarters,” said Glenn Levine, senior economit at Moody’s Analytics. “The most likely cause is now a snap election in December in which voters choose, naturally enough, to delay the tax increase.”

The first phase of the sales tax rise, from 5% to 8%, was introduced in April and growth in the second quarter of the year plummeted as a result. Recent data show that the economy also shrank by 0.4% in the third quarter when compared with the second one. Private consumption, which makes up 60% of Japan’s economy, also took a hit.

Japanese media are now reporting that Abe could announce a snap election for 14 December as early as Tuesday. The Japanese government’s chief spokesperson Yoshihide Suga said on Monday that Abe would decide on a number of steps to take amid the “severe economic situation”. Surveys show that Abe is expected to win a snap election if it were called.

Meanwhile, the U.S. dollar rose to a seven-year high of 117 Japanese yen on Monday before settling at 115.69. Tokyo’s benchmark Nikkei 225 index slid 2.6% to 16,973.80, its biggest single-day drop since August.