Japan GDP grows most on record after COVID-induced recession

The lingering impacts from the COVID-19 pandemic would likely force the Bank of Japan to extend its corporate funding programme beyond its March deadline by year-end or January, after it examines demand from firms hit by the health crisis, she added. On a quarter-on-quarter basis, the economy grew 5.0%, faster than forecasts of 4.4%, pulling out of recession.

Japan's economy grew at the fastest pace on record in the third quarter, rebounding sharply from its biggest postwar slump, as improved exports and consumption showed the country is recovering from damage caused by the coronavirus pandemic. Still, many analysts expect any further rebound in the economy to be more moderate as persistent weakness in consumption and a resurgence in infections at home and abroad clouds the outlook.

The 21.4% expansion in gross domestic product (GDP) beat a median market forecast for an 18.9% gain, Cabinet Office data showed. It marked the first increase in four quarters and followed a 28.8% plunge in April-June. The result was the biggest expansion under comparable data going back to 1980.

"The economy is rebounding from the bottom hit in April-June but a recent resurgence in coronavirus cases in Japan and Europe indicates the pace of recovery in October-December will be softer than July-September," said Mari Iwashita, chief market economist at Daiwa Securities. The lingering impacts from the COVID-19 pandemic would likely force the Bank of Japan to extend its corporate funding programme beyond its March deadline by year-end or January, after it examines demand from firms hit by the health crisis, she added.

On a quarter-on-quarter basis, the economy grew 5.0%, faster than forecasts of 4.4%, pulling out of recession. Private consumption, which makes up more than half of the economy, rose 4.7% in July-September from the previous quarter, rebounding from a plunge in April-June blamed on lockdown measures aimed at preventing the spread of the virus.

It was the first gain in consumption in four quarters, and marked the fastest jump since comparable data began in 1980, led by dining out, leisure activities and automobile demand, a Cabinet Office official said. External demand - or exports minus imports - added 2.9 percentage points to GDP growth thanks to a rebound in overseas demand that pushed up exports by 7.0%.

But capital expenditure fell 3.4%, shrinking for a second straight quarter, suggesting that uncertainty over the pandemic's fallout was weighing on business sentiment. Japan has so far announced two stimulus packages worth a combined $2.2 trillion to ease the pain from the health crisis, including cash payments to households and small business loans.

Prime Minister Yoshihide Suga has instructed his cabinet to come up with another package as the pandemic's damage persists. Despite some signs of improvement in recent months, analysts expect the world's third-largest economy to shrink 5.6% in the current fiscal year ending in March 2021. It could take years to return to pre-COVID levels.

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