The contraction in Japan’s economy from April-June is expected to be worse than initially reported last month when revised data is published on Monday, reflecting a slump in capital expenditure and underscoring concerns that the blow from April’s sales tax rise may have been harder than first believed.

A leading indicator of capital expenditure is also forecast to show that business investment will lose momentum, which could make the government reluctant to go ahead with another sales tax increase scheduled for next year.

The data may suggest an economic rebound widely expected in July-September could lack momentum, keeping policymakers under pressure to expand fiscal and monetary stimulus.

“The way things are going, the economy could undershoot our growth forecasts for the third quarter,” said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co.

“That would still be enough to raise the sales tax again, but the chances of more fiscal spending would increase.”

Japan’s economy is forecast to have shrunk an annualised 7 per cent in April-June, according to a Reuters poll of 27 economists. That would be larger than a preliminary 6.8 per cent annualised decline.

Compared to the previous quarter, the economy contracted 1.8 per cent, more than a preliminary 1.7 per cent, according to the poll.

Policymakers had predicted the economy will shrink in the April-June quarter as consumers withheld spending after a spending spree ahead of the sales tax hike to 8 per cent from 5 per cent on April 1.

But a recent run of weak data, including a slump in household spending and tepid output growth in July, has cast doubt on their forecast that the economy will rebound steadily in the current quarter to sustain a moderate recovery.