TOKYO: Japan's economy contracted 1.7 percent in the three months to June as household and corporate spending slumped after Tokyo raised sales taxes, government data showed Wednesday.
The quarterly gross domestic product figures were the first since the levy rise, and underscore the challenges that Tokyo faces in pressing on with a bid to kickstart an economy long plagued by deflation and laggard growth.
They also raise questions about whether the government will usher in another tax hike next year, a move seen as critical to taming the country's massive national debt.
While the April-June figures -- which translated into a 6.8 percent contraction on an annualised basis -- were slightly better than market expectations, they appeared at odds with the government and Bank of Japan's take that the levy hike's impact had been minimal.
The world's number-three economy had been on the upswing as Prime Minister Shinzo Abe's growth blitz, dubbed Abenomics, helped sharply weaken the yen, giving a lift to exporters' profitability and driving a stock market rally last year.
A huge monetary easing campaign by the Bank of Japan (BoJ) was a cornerstone of the programme.
But economists warned that the strong growth would take a hit as Tokyo hiked the consumption tax to 8.0 percent from 5.0 percent -- the first levy hike in 17 years.
Millions of shoppers launched a last-minute buying binge on everything from cars and washing machines to televisions and alcohol, before the increase on April 1.
Demand fell sharply after prices went up.
Last week, the central bank warned over a worsening export and factory output picture, but it held fire on launching more stimulus, saying the economy was recovering.
But the latest data were likely to add to speculation that a pullback in the economy would force the BoJ's hand on more monetary easing.
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