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Economy

Japan's Q3 GDP slumps to 1-year low as trade war bites

Economy grows only 0.2% as soft global demand hurts exports

The weak data will likely increase calls for the government to stimulate the economy, which may take a hit from a sales tax hike that took effect in October. (Photo by Kosaku Mimura)

TOKYO (Reuters) -- Japan's economy grew at the slowest pace in a year in the third quarter as the U.S.-China trade war and soft global demand knocked exports, keeping policymakers under pressure to ramp up fiscal and monetary stimulus to bolster a fragile recovery.

Growth in private consumption also cooled from the previous quarter, casting doubt on the Bank of Japan's view that robust domestic demand will offset the impact from intensifying global risks.

The world's third-largest economy grew an annualised rate of 0.2% in the third quarter, slowing sharply from a revised 1.8% expansion in April-June, preliminary gross domestic product (GDP) data released by the government showed on Thursday.

It fell well short of a median market forecast for a 0.8% gain and marked the weakest growth since a 2.0% contraction in July-September last year.

The feeble data may heighten calls from lawmakers for the government to boost fiscal spending to support the economy, which many fear will take a hit from a sales tax hike which took effect in October.

Private consumption grew 0.4% in July-September, slowing from a 0.6% increase in the previous quarter, the data showed.

Capital spending, a rare bright spot in the economy, rose 0.9% in the third quarter, accelerating from the previous three months.

External demand knocked 0.2 percentage point off GDP growth, while domestic demand added 0.2 percentage point, the data showed.

The annualised growth translated into a quarterly expansion of 0.1%, smaller than the median forecast of a 0.2% gain, the Cabinet Office data showed.

The data comes as the government plans to compile a package of measures for disaster relief and to protect the economy from heightening global risks.

The BOJ kept monetary policy steady last month but signalled its readiness to maintain or even cut already low interest rates to underpin a fragile recovery.

Prime Minister Shinzo Abe's administration proceeded with a twice-delayed sales tax hike to 10% from 8% in October as part of efforts to fix Japan's tattered finances.

Government officials say the hit to growth from the tax hike will be smaller than the previous increase to 8% from 5% in 2014, because of measures the administration has already taken to ease the impact on households.

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