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 The recession comes nearly two years after 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 (GDP) shrank by an annualised 1.6 percent in
July-September, after plunging 7.3 percent 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 percent, but consumption and exports remained weak, saddling
companies with huge inventories to work off.
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 percent 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," Abe
said at a reception after returning from a weeklong overseas tour.
"We are seizing a chance to exit long-lasting deflation and we
cannot miss that chance," adding he wanted to analyse the situation
and make a decision on the tax.
 Media had already said Abe could announce his decision to delay the
hike for 18 months as early as Tuesday and state his intention to
call an election for parliament's lower house. Ruling party
lawmakers expect the poll to be held on Dec. 14.
An adviser to Abe termed the economic slide "shocking," and urged
the government to take steps to support the economy.
"This is absolutely not a situation in which we should be debating
an increase in the consumption tax," Etsuro Honda, one of the
architects of Abe's reflationary policies, told Reuters.
Economy Minister Akira Amari said some economic stimulus was likely,
but added it would be hard to craft an exceptionally big package
because of the need for fiscal discipline.
No election for the lower house need be held until late 2016, but
political insiders say Abe wants to lock in his mandate while his
ratings are relatively robust. Next year he is expected to push
ahead with unpopular policies such as restarting reactors that went
off-line after the Fukushima nuclear crisis and a shift away from
Japan's post-war pacifism.
Facing a divided and weak opposition, Abe's Liberal Democratic Party
(LDP) is expected to keep its majority in the lower house, but it
could lose some seats.
CONSUMPTION STAGNANT
A senior LDP lawmaker said he expected the premier to delay the tax
hike and call a snap poll, arguing that his "Abenomics" strategy to
re-energise the economy was working but needed more time.
"The prime minister feels strongly that he wants to make certain of
the economic trend so I think he will put off the sales tax rise
from next October," the lawmaker told Reuters.
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But he added it was vital to recommit to a firm date for the rise in
the levy, or risk upsetting investors worried about Japan's debt,
already more than twice the size of its economy.
The yen <JPY=> slipped on the poor GDP reading, with the dollar
briefly pushing to a seven-year high above 117 yen. The Nikkei stock
average <.N225> fell 3 percent. [.T]
Sluggish growth and easing price pressures due to sliding global oil
prices prompted the Bank of Japan to unexpectedly expand its massive
monetary stimulus last month.
Abe inherited the sales tax plan when he took power in December
2012. The LDP, its smaller ally and the then-ruling Democratic Party
enacted the legislation requiring the tax to be raised unless
economic conditions were judged too weak.
The GDP data showed the April hike to 8 percent from 5 percent had
made it harder than anticipated for the public to shake off their
deflationary mindset, Amari said, although he noted one bright spot
in strong corporate profits.
On a quarterly basis, the economy shrank 0.4 percent in the third
quarter after a revised 1.9 percent decrease in April-June.
Economists had expected growth of 0.5 percent.
Private consumption, accounting for about 60 percent of the economy,
rose 0.4 percent from the previous quarter, half as much as
expected. Wage growth has not kept pace with price rises, so a key
mechanism of Abenomics is not working yet.
Some economists, however, said growth could improve in the
October-December quarter.
(Additional reporting by Tetsushi Kajimoto, Stanley White and
Kiyoshi Takenaka; Editing by William Mallard, Kim Coghill and Simon
Cameron-Moore)
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