Japan's economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular VAT hike and call a snap election two years before he has to go to the polls. Shares and the dollar fell.
The recession comes nearly two years after Mr Abe returned to power promising to revive the economy with his "Abenomics" mix of massive monetary stimulus, spending and reforms, and is unwelcome news for an already shaky global economy.
Gross domestic product shrank by an annualised 1.6pc in July-September, after plunging 7.3pc in the second quarter following a rise in VAT, which clobbered consumer spending.
The world's third-largest economy had been forecast to rebound by 2.pc, but consumption and exports remained weak, saddling companies with huge inventories to work off.
Mr Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10pc in October next year, as part of a plan to curb Japan's huge public debt, the worst among advanced nations.
"GDP figures for July-September turned out not so encouraging," Mr Abe said at a reception after returning from a week-long overseas tour. "We are seizing a chance to exit long-lasting deflation and we cannot miss that chance," he added.