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Japan economy shrinks 0.8% in Q3, back in recession

Japan’s economy slid back into recession in July-September as uncertainty over the overseas outlook hurt business investment, putting policymakers under growing pressure to deploy new stimulus measures to support a fragile recovery.

Many analysts expect the economy to grow only moderately in the current quarter as companies remain hesitant to use their record profits for wage hikes, underscoring the challenges premier Shinzo Abe faces in pulling Japan sustainably out of stagnation with his “Abenomics” stimulus policies.

The world’s third-largest economy shrank an annualised 0.8 percent in July-September, more than a median market forecast for a 0.2 percent contraction, government data showed on Monday.

That followed a revised 0.7 percent contraction in April-June, which was the first decline in three quarters.

Japan thus slipped back into technical recession, which is definied as two consecutive quarters of contraction, after suffering one last year due to the hit on consumer spending from a sales tax hike in April 2014.

On a quarter-on-quarter basis, the economy shrank 0.2 percent in the third quarter, the Cabinet Office data showed.

The dismal reading may affect debate among politicians and policymakers on how much fiscal spending should be earmarked in a supplementary budget that is expected to be compiled this fiscal year.

Private consumption, which accounts for about 60 percent of the economy, rose 0.5 percent from the previous quarter, roughly in line with a median market forecast for a 0.4 percent increase, the data showed.

Capital expenditure fell 1.3 percent, more than a median market forecast of a 0.4 percent decrease, marking a second straight quarter of declines.

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External demand added 0.1 percentage point to GDP growth, while domestic demand shaved 0.3 point off growth, the data showed.

The weak data would be of little surprise to many Bank of Japan officials, who had largely factored in the recession and expect growth to rebound in coming quarters as consumption and factory output show signs of a pick-up.

While the data will be closely scrutinized by the policymakers, the BOJ is widely expected to keep monetary policy steady at its rate review this week, analysts say.

Last month the BOJ cut its economic growth and inflation projections but held off on expanding stimulus, hoping that the economy recovers well enough to accelerate inflation to reach the its ambitious 2 percent target.

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