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Dec 7, 11:55 PM EST

Japan economy gains momentum, grows 2.5 percent in July-Sept


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TOKYO (AP) -- Japan's economy is gaining momentum, expanding at a 2.5 percent annual pace in July-September, the government said Friday.

The upward revision from an earlier estimate of 1.4 percent growth reflects higher business investment and rising inventories, it said.

In quarterly terms the world's third-largest economy expanded at a 0.6 percent pace, twice the original estimate, the report said.

Private demand rose 0.3 percent from the previous quarter; the earlier estimate had it flat.

A revival in demand across the region and in other major markets has helped breathe new life into Japan's recovery. However, annual growth in net exports was unchanged in this latest report, at 0.6 percent.

Prime Minister Shinzo Abe has announced plans for longer-term efforts to support growth and productivity as the nation ages and its population declines - a trend that is causing alarm but also creating new business opportunities in automation and services for Japan's fast growing population of senior citizens.

The economy is in its longest expansion in years, with unemployment below 3 percent, but growth remains meager and inflation is still well below the 2 percent official target. Economists say that wages are rising too slowly to ignite faster price increases, and Abe and other officials have urged companies to use huge cash piles that have accumulated over the past few years to help spur growth through investment and wage hikes.

Other data reported Friday showed year-on-year growth in cash income slowing to 0.6 percent in October from 0.9 percent in September, mainly due to lower bonus payments.

Productivity is rising just 0.4 percent in annual terms, not fast enough to force companies to raise prices, Marcel Thieliant of Capita Economics said in a commentary.

"However, the economy is running into capacity constraints and firms face increasingly severe staff shortages. The upshot is that the expansion should slow again before long," he said.

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