Japanese Prime Minister Shinzo Abe has returned home from a summit circuit to a shock recession. But this may actually work as political fuel to power his reflation strategy for the faltering economy.
(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING: "For market watchers in Japan, it's all finally starting to make sense. " The central bank's halloween stimulus shocker. The yen again in freefall. And then media leaks; Prime Minister Shinzo Abe may shelve an unpopular second sales tax hike and call a snap election. All setting up the big reveal: GDP. From the painful 7.3 percent contraction in second quarter growth, we were supposed to get an Abenomics-powered recovery -- rising 2 percent. Instead we got this, a 1.6 percent fall confirming Asia's second-largest economy is officially back in recession. To put that in perspective, this now marks the third year in the last 4 where Japan's experienced a recession. While the sales tax hike - a legislated rule Abe inherited upon taking office in late 2012 - may be put on ice, don't expect any changes to his ultra-easy monetary policy. Getting prices rising remains key, according to Credit Suisse's Stefan Worrall, who says, 'the most important policy to get Japan out of its slump would be to try and induce inflation expectations among the private sector.' With Abe wrapping up a week-long regional leadership summit circuit, and now at last back to business in Japan, the smart money will be betting on him calling fresh elections to consolidate his power for the next couple of years. (SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING: "The far riskier bet is whether or not that'll be enough to pull off what's been so elusive: reflating Japan's economy back into good health." ENDS