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Japan Slips Into Recession

Passers-by are reflected on an electronic board showing Japan's Nikkei stock average and the Japanese yen's exchange rate against the U.S. dollar (top) at a brokerage in Tokyo, November 17, 2014.

Japan's economy, the world's third largest, has fallen into recession.

New data show the economy shrank at a 1.6 percent annual rate in July, August and September, after an even sharper decline in the previous quarter. Textbooks often define "recession" as two consecutive quarters of "negative growth."

Japan GDP 2008 - Q3 2014
Japan GDP 2008 - Q3 2014

The shrinking economy follows a tax increase that apparently discouraged spending by consumers and businesses. Stories in the financial press say the bad economic news makes it likely that Prime Minister Shinzo Abe will delay another planned tax hike and call an early election.

Abe took office promising to improve the slumping economy through massive public stimulus spending and reforms. The plan often is called "Abenomics."

The shrinking economy surprised experts who mostly predicted modest growth for Japan. News of the recession caused stocks to decline in Tokyo and some other major markets.