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Japanese Economy Sees Worst Quarterly Decline Since 2011

A man walks past an electronic stock board of a securities firm in Tokyo as the 225-issue Nikkei Stock Average, shown top center, dived 454.00 points, or 2.98 percent, and finished at 14,778.37, hitting a two-month low Friday, Aug. 8, 2014.

Japan's economy has experienced its worst quarterly decline since the 2011 earthquake and tsunami disaster.

Figures released Wednesday show Japan's gross domestic product shrank at an annual pace of 6.8 percent during the second quarter.

When compared to the previous three months, the economy fell 1.7 percent.

Japan Economy, 2008 - 2014
Japan Economy, 2008 - 2014

The drop was expected. It is seen as the result of a sales tax increase that held back household and corporate spending.

The government in April raised the consumption tax from 5 percent to 8 percent in order to deal with Japan's massive public debt.

There have been worries the tax hike would threaten the limited growth achieved by Prime Minister Shinzo Abe's "Abenomics" strategy.

The plan has involved massive monetary easing, a policy that increases the money supply to fight deflation and thereby help exporters, a main driver of the world's third largest economy.

The government must decide now whether further monetary easing is needed, especially if the economy does not rebound in the third quarter.

There may also be questions about whether the government will introduce another tax increase next year, as planned.