Japan’s economy has dropped into a recession after a second-straight quarter of contraction, official data shows, in a huge blow to Prime Minister Shinzo Abe’s bid to turn around years of laggard growth.

The country’s gross domestic product shrank 0.4 per cent in the July-September quarter, or an annualised rate of 1.6 per cent, underscoring how an April tax rise dented growth in the world’s number three economy and weighing on the chances of a second levy hike next year.

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The surprise figure missed market media expectations for a 0.5 per cent expansion, according to economists surveyed by the leading Nikkei business daily, as residential investment dived and consumer spending remained tepid.

The data increases the likelihood that Abe – who is expected to call a snap election for next month – will delay a plan to boost Japan’s sales tax to 10 per cent next year.

A rise to 8.0 per cent from 5.0 per cent earlier this year slammed the brakes on growth.

The country suffered a revised 1.9 per cent contraction in the April-June quarter – or 7.3 per cent at an annualised rate – as consumers and firms capped their spending.

That reversed a 1.6 per cent expansion in the first quarter of the year when hopes were still buoyant for Abe’s pro-spending growth bid, dubbed “Abenomics”.

Last month, the Bank of Japan expanded its already huge monetary easing campaign to counter the downturn, but the latest figures will also hike speculation of further moves by the central bank.