Japan's economy expanded at a faster pace than initially reported for the July-September period, driven by upward revisions in capital investment and exports, according to revised data from the Cabinet Office on Monday.

The nation's gross domestic product (GDP) increased by an annualised 1.2% during the third quarter, surpassing the preliminary estimate of 0.9% and the median forecast by economists. This equates to a quarter-on-quarter growth of 0.3% in price-adjusted terms, revised from an earlier figure of 0.2% reported on Nov 15.

While the rise in domestic demand may encourage policymakers, the Bank of Japan's outlook on economic recovery faces challenges from uncertainties surrounding proposed tariffs by US President-elect Donald Trump.

Economists remain divided over the feasibility of raising borrowing costs amid signs of weak recovery, including lacklustre household spending. However, some suggest that the Bank of Japan might adjust interest rates this month, citing similar actions in March and July despite weak consumption trends.

The capital expenditure segment of GDP, often seen as an indicator of private-sector strength, contracted by 0.1% in the third quarter, revised upward from a 0.2% decline in the initial estimate. Economists had forecasted a slight 0.1% increase.

Private consumption, which constitutes over half of Japan's economy, grew by 0.7%, a downward revision from the initial estimate of 0.9%. Meanwhile, external demand – exports minus imports – shaved 0.2 ppt off GDP growth, compared to the preliminary estimate of a 0.4 ppt drop. Domestic demand contributed 0.5 ppt to the overall growth figure.

The data reflects the ongoing struggle to establish a robust economic recovery, even as policymakers seek to stabilise growth amid global uncertainties.

Reuters