Osaka Corp - Japan’s economy, the world’s third largest, has slipped back into recession after registering a second consecutive quarterly contraction in the 3-month period.

The quarter contracted by an annualized 0.8% following a revised 0.7% contraction in the second quarter. This is the second recession in two years, the first coming last year due to the effects of an April 2014 sales tax increase on consumer spending.

This is the latest setback for Shinzo Abe’s controversial ‘Abenomics’ economic plan which he pledged would push Japan’s economy out of a 20-year affliction with deflation by creating robust, sustainable growth.

“Economists had been expecting a 0.2% contraction so the actual figure was a lot worse than feared,” said an OSC Osaka Corp Asian markets analyst. “The policies being pursued by Mr. Abe’s ally at the Bank of Japan, Haruhiko Kuroda, aren’t working,” she added.

Over the last 2 years, Mr. Kuroda has launched an unprecedented amount of quantitative easing in an effort to flood the economy with liquidity but the all-important 2% inflation target he has set appears to be even more elusive.

A fall in inventories at stores and warehouses deducted 2.1 percentage points from overall GDP growth overshadowing gains from private consumption and outside demand.

“Banks and investors have pushed up the value of risk assets like stocks and bonds and the central bank itself is buying anything that isn’t nailed to the floor including ETFs and equities, all of which harbor higher risk than the government and corporate bonds usually bought in monetary stimulus exercises of this type,” explained the OSC Osaka Corp analyst.