Japan’s economy dodged a technical recession in the third quarter with the initial estimate of a contraction revised to an annualised expansion of one per cent, offering a glimmer of hope for policymakers struggling to end years of stagnation.

The upgrade from a preliminary reading of a 0.8 per cent fall was bigger than a median market forecast for a revision to a 0.1 per cent increase, suggesting the world’s third largest economy was in better shape than initially thought. It followed a revised 0.5 per cent contraction in April-June.

Capital expenditure was the key contributor to the upgrade, revised up to a 0.6 per cent gain from a preliminary 1.3 per cent drop, Cabinet Office data showed yesterday.

Policymakers will remain under pressure to speed up growth

Initial estimates of a third-quarter contraction had meant Japan was in a technical recession – defined as two straight quarters in which GDP has declined.

Even with revised data showing Japan dodged recession, policymakers will remain under pressure to speed up growth with additional stimulus measures.

The government is likely to compile a supplementary budget exceeding three trillion yen (€14.75 billion), while the BOJ is set to maintain its massive stimulus programme to accelerate consumer inflation – now sliding – to its two per cent target.

Japanese manufacturers have amassed huge profits thanks to a weak yen driven by premier Shinzo Abe’s “Abenomics” stimulus policies. But they have been slow in boosting wages and capital expenditure on concerns over the overseas outlook, keeping growth subdued.

Many analysts expect the economy to rebound only modestly in the current quarter given weak household spending and exports.