The Japanese economy suffered its biggest contraction since the March 2011 earthquake in the second quarter of this year as the hike in sales tax to 8 from 5 percent took a heavy toll on household spending, stoking fears that any rebound may be too modest to sustain a solid recovery.
While the soft data is unlikely to shake the Bank of Japan's conviction that the economy will eventually ride out the impact of the tax hike, it could put pressure on the bank for further monetary easing if weakness in exports and consumption is prolonged.
The world's third-largest economy shrank an annualized 6.8 percent in the second quarter of 2014. That was less than a median market forecast of a 7.1 percent drop, and came after a 6.1 percent increase in January-March, when consumers rushed to buy large items ahead of the tax raise, Cabinet Office data showed on Wednesday.