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Japan economy is set to grow by more than  1% in the fourth quarter.
Japan economy is set to grow by more than  1% in the fourth quarter.

Japan Widens Economic Growth Streak

Japan Widens Economic Growth Streak

Japan’s economy is on track to close out the year expanding faster than its potential growth rate, even after recent soft readings for consumption and inflation.

Global demand remains strong, driving double-digit gains in Japanese exports in recent months and helping to fuel business investment.

Capital expenditure stood out in a slew of important data released on Friday, beating expectations with a 4.2% gain in the third quarter, Bloomberg reported.

 “Overall, the pace of growth remains good,” said Masamichi Adachi, senior economist at JPMorgan Securities Japan Co. “An increase in capital investment is playing a big part in this.”

While the fourth quarter got off to an inauspicious start for corporate Japan—bad weather kept shoppers at home and scandals at companies including Kobe Steel and Nissan dominated the headlines in October—key indicators released this week suggest the impact was limited.

Industrial production rose 0.5% from September, lower than estimates, but forecasts point to solid gains for November and December.

Consumer spending and retail sales were largely flat.

The world’s third-largest economy is set to grow by more than 1% in the fourth quarter, extending a run of expansion that stretches back to the start of 2016, said Nobuyasu Atago, chief economist at Okasan Securities Co. and a former Bank of Japan official.

“The important thing is that production is at a very strong stage from a cyclical standpoint and you have to make your judgment with that in mind, or you can be wrong,” Atago said. “Consumption will rebound once the effects of bad weather fade and pent-up demand follows.”

A second reading of third-quarter gross domestic product, due on Dec. 8, may see the 1.4% preliminary result revised higher due to the better-than-expected capex data. The central bank’s estimated range for the economy’s potential growth rate is 0.5 to 1%.

Inflation is rising, with prices excluding fresh food increasing in October by the most in more than two years, but at 0.8% it remains far off the Bank of Japan’s 2% target. Tepid consumption makes companies cautious about raising prices, while sluggish wage gains keep consumers reluctant to spend.

“What worries me is consumption,” Adachi said. “When you look at improvement in the labor market, consumption can’t fall. I don’t think only bad weather can explain its weakness. I think people are worried about their future in general.”

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