The preliminary economic report, issued by the Cabinet Office, showed that gross domestic product fell at an annualized pace of 1.6 percent in the quarter through September.That added to the previous quarter’s much larger decline, which the government now puts at 7.3 percent, a slightly worse figure than in its last estimate of 7.1 percent.Japan’s still half-completed sales-tax increase, an all-consuming political issue here, has also become a target of concern for leaders in the United States. Last week Treasury Secretary Jacob J. Lew urged Japanese and European policy makers to do more to stimulate their economies. “If things are really bad in Europe and Japan, if there’s a real slowdown in China, that’s a headwind in the United States that we don’t need,” Mr. Lew said.  The surprise Japanese recession underscores the difficulties faced by Mr. Abe, who won power two years ago on a pledge to reinvigorate the economy and end his country’s long era of wage and consumer-price declines. His agenda has focused largely on stimulus measures, in particular a vastly expanded program of government bond purchases by the central bank. Yet its impact, economists say, has been dulled by the tax increase, which was approved under a previous government.  The tax plan was intended to curb Japan’s immense government debt, which at about two and a half years’ national economic output is the largest in the developed world. But there are concerns that after years of sluggish wage growth, consumer confidence is still too weak handle the increase. Instead of solving the debt problem, heavier taxes could simply push the economy back into a downward slide.

via Defying Expectations, Japan’s Economy Falls Into Recession – NYTimes.com.