Japan’s economic contraction over the summer will support Prime Minister Sanae Takaichi’s case to compile an ambitious stimulus package even as the central bank stays on track for a rate hike in the coming months.

Japan’s real gross domestic product shrank by 1.8% on an annualised basis in the three months through September, the first decline in six quarters, according to a Cabinet Office report on Monday. That was better than economists’ median estimate of a 2.4% fall.

Private residential investment and exports were among key factors exerting a drag on overall output, as expected due to the introduction of regulatory changes for the construction industry and ongoing US tariffs. Consumer spending, the biggest component of GDP, barely budged, failing to counteract the weakness.

The yen w

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