Japan manages Q3 growth spurt but soft patch looms

Monday, 15 November 2010 22:43 - - {{hitsCtrl.values.hits}}

TOKYO,(Reuters) - Japan’s economic growth accelerated in the third quarter as expiring government stimulus steps gave consumption a last-minute boost, marking an upward blip in a moderate slowdown that is leading the economy to a standstill.

Many analysts expect the economy to stall, or even contract slightly, in the next two quarters as the strong yen’s damage to exports becomes more evident and factory output slumps after stimulus measures for low-emission cars expired in September.

While few expect Japan to slip back into recession, policymakers remain alert for risks to the fragile economy.

Should a renewed yen rise add to the woes dragging on growth, the Bank of Japan may ease monetary policy further to avoid a prolonged downturn.

“Third-quarter growth relied heavily on domestic demand, and this suggests a marked slowdown in the final quarter as stimulus-driven consumption loses steam and export growth slows,” said Junko Nishioka, chief Japan economist at RBS Securities.

Japan’s gross domestic product (GDP) grew 0.9 percent in July-September from the previous quarter, accelerating from a 0.4 percent gain in the second quarter and beating a median forecast for a 0.6 percent rise, Cabinet Office data showed on Monday.

The fourth straight quarter of expansion translates into an annualised gain of 3.9 percent, nearly double the rate of U.S. growth marked in the same period.