Japan's economy shrinks more than initial estimates

Japan's economy contracted by 7.1% in the three months to June, more than initial estimates, and revised from 6.8% reported in August.

Most forecasts were for the economy to shrink by about 7%.

The contraction during the second quarter has been widely attributed to a hike in the nation's sales tax, which rose from 5% to 8% in April.

The official gross domestic product (GDP) figure of 7.1% is an annualised number.

In quarterly terms, Japan's economy, which is the world's third-largest, shrank by 1.8% in the three months to June compared to the quarter ending in March when it grew by 1.5%.

 'Cautious decision'

Private consumption makes up some

60% of Japan's economic activity.

The nation's consumers were largely seen spending more in the first quarter rather than the second, however, in an attempt to beat the sales tax hike introduced in April.

And that activity is what economists say negatively impacted growth in the second quarter.

A raft of official data released at the end of last month by Japan's government showed that households had spent less and that factory output stayed flat in July.

Retail sales in July showed some small hope, rising by 0.5% from a year earlier, after a fall of 0.6% in June.

But economists say the current economic landscape should encourage the government to introduce even more reforms.

Prime Minister Shinzo Abe's position on raising the sales tax to 10% is "utterly neutral", says Japan's economy minister Akira Amari.

At the beginning of this month, Japan's prime minister Shinzo Abe announced a government re-shuffle, which many have said signals his determination to get the economy back on track by the end of the year.

Mr Abe is expected to make a decision in December about a second hike to the sales tax, which would see it move to 10% in October next year.

Japan's economy minister Akira Amari said on Friday that the nation was ready to introduce a stimulus package that would buffer the impact of another sales tax hike if it was introduced.

He said the prime minister's position was "utterly neutral" on a further sales tax rise.

"[Mr Abe] said no countries have doubled the sales tax rate over a year and a half," said Mr Amari.

"I expect that he will make a considerably cautious decision."

BBC Business