Japan says economy contracted 7.1% in 2Q

TOKYO — Japan's economy contracted at a larger than earlier estimated annual rate of 7.1 percent in April-June, the government said Monday.

Revised data showed business investment fell more than twice as much as estimated before, or 5.1 percent, while private residential spending sank 10.4 percent. The earlier estimate showed the economy contracting 6.8 percent.

The recovery of the world's third-largest economy has slowed following an increase in the sales tax to 8 percent from 5 percent on April 1.

The economy grew at a seasonally adjusted annual rate of 6 percent in January-March. In quarterly terms, the economy contracted 1.8 percent in April-June from the previous quarter.

Prime Minister Shinzo Abe has championed an aggressive stimulus program aimed at ending chronic deflation that has discouraged corporate investment, dragging on growth. But a sustainable recovery will require strong corporate and private spending, since exports and public spending appear are doing little to lift growth.

Business activity surged early in the year as consumers and businesses stepped up purchases to avoid paying more tax, and economists forecast a rebound in coming months, though signs suggest it will be modest.

"Industrial production was still 2 percent below the second quarter average in July, and we have yet to see a turnaround in capital spending," Marcel Thieliant of Capital Economics said in a commentary. He noted that a recovery in retail sales should help boost growth, despite the sharp drop in residential spending following the tax hike.

Abe faces a tough decision over whether to go ahead with a pledge to raise the sales tax by another 2 percentage points, to 10 percent in 2015. The tax hikes are needed to counter ballooning public debt, which now is more than twice the size of the economy.