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Japan Falls into Recession—but (Probably) Escapes a New Tax Increase

The Shinsekai shopping district in Osaka, Japan.
The Shinsekai shopping district in Osaka, Japan.Photograph by Frederic Soltan/Corbis

How weak is the Japanese economy? Even the most bearish economist surveyed by Bloomberg was too upbeat. Yoshiki Shinke, the chief economist at Dai-ichi Life Research Institute, had forecast real GDP would expand an annualized 0.8 percent in the third quarter, following a 7.3 percent plunge in the second quarter. Turns out that meager growth forecast was far too optimistic: The Japanese economy actually contracted 1.6 percent.

It’s not hard to find the culprit. The weight of the April increase in Japan’s consumption tax—from the previous 5 percent to the current 8 percent—has proved harder to overcome than even the bears had feared. “April’s sales tax completely destroyed Japan’s economy,” Shinke told Bloomberg News. “No part of Japan’s economy looks encouraging.”