Japan's economy grows at slower 0.9% pace

Japan's economy expanded by an annualized 0.9% over the July-September quarter, government data showed, slowing from the previous three months due to tepid capital spending though an unexpected pickup in consumption added a bright spot.

The slower growth highlights the frailty of Japan's economy just as there is a growing risk of slowdown in the US and further weakness in China which could weigh on exports.

Stronger-than-expected private consumption, however, supports the central bank's forecast of a solid recovery driven by higher wages and consumption helping inflation sustainably hit its 2% target and justifying higher interest rates.

The increase in gross domestic product was faster than a median market estimate of 0.7%, but slower than the revised 2.2% growth of the previous quarter, the data showed.

The reading translates into a quarterly rise of 0.2%, matching economists median market estimate in a poll.

Private consumption, which accounts for more than half of economic output, rose 0.9%, outpacing a market estimate of 0.2% and picking up from the revised 0.7% of the previous quarter.

That may reflect one-off factors such as recovery in auto production after safety certification scandals and a boost from temporary income tax cuts.

Capital spending, a key driver of private demand-led growth, fell 0.2% in the third quarter, matching a decrease of 0.2% expected in the poll.

Slowdown in overseas economies has put downward pressure on machinery investment in such sectors as chips making equipment, economists said.

Net external demand, or exports minus imports, knocked 0.4 point off growth, deeper than a 0.1 point negative contribution in the three months from April to June.

The Bank of Japan maintained ultra-low rates last month and said risk around the US economy was somewhat subsiding, signaling conditions are becoming conducive to raise rates again.