Japan has not fully adjusted to the April sales tax hike, analysts told CNBC following a deluge of data on Tuesday.
Retail sales rose 1.2 percent on year in August, above expectations for a 0.3 percent rise in a Reuters poll and up from a 0.6 percent rise in July, data showed on Tuesday.
However, household spending fell 4.7 percent on year, worse than expectations for a 3.8 percent decline, while industrial production fell 1.5 percent on month, below expectations for a 0.2 percent rise.
"Obviously we're still dealing with the effects of the tax [hike] in April. The third arrow [of Abenomics] was going to be difficult we know," said Martin Schulz, managing director of international equities at PNC Capital Advisors.
Takuji Okubo, principal and chief economist at Japan Macro Advisors, told CNBC he was particularly concerned about the drop in industrial production.
"The low point was the industrial production. We've had two quarters of consecutive decline in production... so they are experiencing a technical recession. So that is definitely bad news, and this also has impacts for exports and capital investment," he said.
"With consumers suffering under the weight of consumption tax it has to be exports or capital expenditure that drives the Japanese economy, but from what we're seeing in industrial production that doesn't seem to be happening, so the Japanese economy is basically without a driver," he added.