Japan's Economy Dips As New Sales Tax Bites

Japan's economy has shrunk by 7.1%, on an annualised basis, amid pressure on the government to halt a second big hike in sales tax.

The figures come as a blow to Prime Minister Shinzo Abe and his plan to rejuvenate the economy.

It was the steepest quarterly drop in the world's third largest economy since the 2011 earthquake and tsunami.

Gross domestic product (GDP) in the three months to the end of June contracted 1.8% from the first quarter, worse than the previously estimated fall of 1.7%.

The annualised basis drop of 7.1% - calculated if the performance was replicated over a 12-month period - exceeded the 6.8% preliminary estimate.

The annualised rate means it was the worst performance since early 2009, amid the depths of the global financial crisis.

Experts said it was a result of a 3% rise in sales tax in April to 8% - the first increase for 17 years - designed to increase revenue and reducing Japan's massive national debt.

It is due to be raised again, to 10%, in 2015.

The economy had been expanding in the first quarter, as consumers splashed out on goods ahead of the sales tax rise.

A weakened yen had also helped the economy and exporters, spurring on a stock market rally, amid a monetary easing policy.

"Expectations will likely strengthen for further monetary easing by the Bank of Japan and more spending by the government," SMBC Nikko Securities chief economist Junichi Makino said.

Meanwhile China, which has shot past Japan to be the world's second largest economy, announced a surge in the August trade surplus to a record monthly figure of $49.8bn (£30.8bn).

Imports fell 2.4% year-on-year, while exports increased 9.4% in the period.

The results came on the heels of data showing softness in China's economy during the current third quarter, prompting economists to expect officials to take further steps to boost growth.

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