By Jonathan Davies

Japan's economy shrank by 7.1% in the three months to June, compared with the same period last year.

The figures are more than initial estimates of 7% and 0.3% higher than forecasts.

The decline in the Japanese economy, in the short-term at least, has largely been attributed to April's sales tax hike. The government raised the sales tax from 5% to 8% which prompted a rise in sales in the first quarter, with consumers rushing to beat the rising prices from April.

On a quarterly basis, Japan's economy shrank by 1.8% in the three months to June compared with the three months to March when it grew 1.5%.

Japan's Prime Minister Shinzo Abe, is expected to announced a decision to increase the sales tax even further to 10% by October next year. But the country's economy minister said the government would introduce a stimulus package to offset the impact of the sales tax.

Despite the huge shrinking of Japan's economy, there are signs that the sales tax hike is having some positive effect. Retail sales were actually up 0.6% in July, compared to July 2013 after a 0.6% fall in June.

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