Japan's economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election halfway through his term in office.
Gross domestic product (GDP) fell at an annualised 1.6% pace in the three months from July to September.
It had plunged 7.3% in the second quarter following a rise in the national sales tax, which clobbered consumer spending.
The world's third-largest economy had been forecast to rebound by 2.1% in the third quarter, but consumption and exports remained weak, saddling companies with huge inventories.
Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10% in October next year, as part of a plan to curb Japan's huge public debt, the worst among advanced nations.
The economic slide was "shocking," an Abe economic adviser said, calling for the government to consider measures to support the economy.
Even before the GDP announcement, Abe appeared to suggest he was leaning toward delaying the tax hike.
"Raising the tax rate is meant to increase tax revenue," he told reporters travelling with him in Brisbane, Australia, over the weekend. "If we return to deflation, it would all be for nothing, he added.
Sluggish economic growth and downward pressure on inflation due to sliding global oil prices prompted the Bank of Japan to expand its massive monetary stimulus last month, surprising financial markets.
No election for the Japanese parliament's powerful lower house need be held until late 2016.
But political insiders say Abe wants to lock in his mandate while his ratings are still relatively robust, helping him push ahead with economic and other policies such a controversial shift away from Japan's post-war pacifism.
Abe inherited the sales tax plan when he took power in December 2012, pledging to revive the economy with his "Abenomics" mix of ultra-easy monetary policy, spending and reforms.
Economy Minister Akira Amari said the GDP data showed that the impact of the April tax hike was bigger than expected in preventing the public from shaking off their deflationary mindset.
Household spending is stagnating, while housing investment and corporate capital spending were down, Amari said, while finding a bright spot in strong corporate profits.
On a quarter-on-quarter basis, the economy shrank 0.4% in the third quarter, following a contraction of 1.8% in the second quarter. Recessions are typically defined as two or more consecutive quarters of economic contraction.
Private consumption, which accounts for about 60% of Japan's economy, rose 0.4% from the previous quarter, half as much as expected, in a sign that the April tax increase to 8% from 5%t had a stronger and more lingering impacton spending than initially expected.
