Japan's economic growth accelerated in the third quarter as expiring government incentives gave consumption a last-minute boost before a long-anticipated slowdown analysts believe is already under way.
The yen was trading below its 15-year peaks today, but its renewed climb toward record highs could prompt the Bank of Japan to ease monetary policy further by spending more on government bonds and other assets 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 grew 0.9 per cent in July-September from the previous quarter, accelerating from a 0.4 per cent rise in the second quarter and beating a median forecast for a 0.6 percent rise, official data showed today.
The fourth straight quarter of growth translates into an annualised rise of 3.9 per cent, nearly double the rate of US growth in the same period.
Analysts expect the Japanese 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 incentives for buyers of low-emission cars expired in September.
While few expect Japan to slip back into recession, policymakers remain alert to risks to the fragile economy.
The government saw little to cheer about, with economics minister Banri Kaieda warning that slowing overseas growth and the strong yen could threaten the outlook.
"Japan's economy is at a standstill with weakness in production," he said in a statement issued after the data.
Japan emerged from its worst recession since World War Two in the second quarter of 2009, but growth has been spotty due to a lacklustre labour market and slow gains in corporate spending.