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Japan's economy vaults back from COVID-induced recession, but outlook murky – The Journal Pioneer

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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s economy grew at the fastest pace on record in the third quarter, rebounding sharply from its biggest postwar slump, as improved exports and consumption helped the country emerge from the damage caused by the coronavirus pandemic.

However, analysts painted the sharp bounceback as a one-off from the depths of recession, and cautioned that any further rebound in the economy will be moderate as a resurgence in infections at home and abroad clouds the outlook.

The world’s third-largest economy expanded an annualised 21.4% in July-September, beating a median market forecast for an 18.9% gain and marking the first increase in four quarters, government data showed on Monday.

It was the biggest increase since comparable data became available in 1980 and followed a 28.8% plunge in the second quarter, when consumption took a hit from lock-down measures to prevent the spread of the virus.

“The strong growth in July-September was likely a one-off rebound from an extraordinary contraction caused by the lock-down steps,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“The economy may not fall off a cliff. But given uncertainty over the outlook, I would err on the side of caution in terms of the pace of any recovery,” he said.

The rebound was driven largely by a record 4.7% surge in private consumption, as households boosted spending on cars, leisure and restaurants, a government official told a briefing.

External demand also added 2.9 percentage points to gross domestic product (GDP) growth thanks to a rebound in overseas demand that pushed up exports by 7.0%, the data showed.

But capital expenditure fell 3.4%, shrinking for a second straight quarter in a worrying sign for policymakers hoping to revitalise the economy with private-sector spending.

Economy Minister Yasutoshi Nishimura said the economy still had over 30 trillion yen ($287 billion) of negative output gap, or spare capacity, part of which must be filled by a new stimulus package now in the works.

“We can’t make up for all of the output gap just with public works spending. We also need to spur private investment. But the size (of the output gap) is something we’ll look at” in compiling the new spending package, he told a news conference.

A negative output gap occurs when actual output is less than the economy’s full capacity and is see as a sign of weak demand.

Without additional stimulus, Japan may experience a fiscal cliff next year as the effect of two big packages deployed earlier this year – worth a combined $2.2 trillion – peter out.

Prime Minister Yoshihide Suga has instructed his cabinet to come up with another package, which analysts say could be sized anywhere between 10-30 trillion yen.

“Nishimura’s remark on the 30-trillion-yen output gap suggests the size of the new package would come by as much,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The Bank of Japan is also expected to extend its corporate funding programme beyond its March deadline, with a decision expected next month or January, analysts say.

Despite some signs of improvement in recent months, analysts expect the world’s third-largest economy to shrink 5.6% in the current fiscal year ending in March 2021 and say it could take years to return to pre-COVID levels.

($1 = 104.5200 yen)

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kaori Kaneko; Editing by Richard Pullin)

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Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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