TOKYO: Japan’s economy contracted more than initially thought in the July-September quarter, revised official data revealed on Monday, showing the world’s third largest economy sank deeper into recession.

The economy shrank 0.5 per cent quarter-on-quarter, worse than the 0.4pc estimated in initial data released three weeks ago, the Cabinet Office said.

The reading was much worse than the median forecast of a 0.1pc quarterly shrinkage in a survey by the Nikkei economic daily.

The drop came after a 1.7pc contraction in the April-June quarter, meeting a common definition of a recession as two consecutive quarters of negative growth.

On an annualised rate, the economy shrank 1.9pc in the third quarter against the initially-estimated fall of 1.6pc.

Prime Minister Shinzo Abe over the past two years has pressed ahead with a pro-spending growth bid, dubbed “Abenomics”, which boosted stock prices and pushed the yen down.

Where it had been credited with success up until the effects of a sales tax rise in April this year, Monday’s revised data showed the economy in fact contracted 0.4pc in the last quarter of 2013.

It expanded 1.4pc in January-March on shoppers’ last-minute buying binge before the tax rise.

Japan’s VAT rate rose from 5pc to 8pc on April 1, hitting consumers.

Private consumption picked up only 0.4pc after plunging 5.1pc in the April-June period, the latest data showed.

Private residential investment dived 6.8pc while private-sector corporate capital spending fell 0.4pc.

But Marcel Thieliant, Japan economist at Capital Economics, said the economy could return to growth in October-December.

Companies’ inventory adjustment was a large drag and overstated the weakness of the economy as some monthly data was encouraging, he said.

“The upshot is that the economy likely returned to growth this quarter,” he said in a note.

Separate data from the finance ministry showed Japan posted an 833.4 billion yen surplus in October on its current account, reversing a deficit of 154.3bn yen thanks to a weaker yen and lower oil prices.

The current account is the broadest measure of the country’s trade with the rest of the world.

Income jumped with higher gains from equity and other direct investment, as well as from investment in financial items, partly inflated by a lower yen.

Published in Dawn December 9th , 2014