DJ: Japan Jul-Sep Real GDP Growth Halves to Annualized 1.9%

TOKYO--Japan's growth rate halved during the July-September period compared with the first half of this year, as falling demand from emerging markets as well as domestic consumers put the brakes on the economy's pacesetting growth.

The country's gross domestic product, the broadest measure of goods and services produced in the economy, expanded at an annualized pace of 1.9% in the three-month period ended in September, the government said Thursday. The outcome beat the 1.7% growth forecast by economists polled by The Wall Street Journal.

The result was a sharp slow-down from the revised 4.3% growth in January-March quarter and the 3.8% expansion in the April-June period, when the world's third-largest economy enjoyed booming exports and vibrant consumer spending stemming from a sharp weakening of the yen and rising stock prices.

Prime Minister Shinzo Abe's pro-growth policies known as "Abenomics," including the Bank of Japan's aggressive monetary easing program, have helped lower the currency after years of strength and lift Tokyo shares.

But the two growth pillars lost much of their momentum in the reporting period, as exports fell 0.6% from the previous quarter while growth in personal consumption slowed to 0.1%. Exports gained 2.9% and consumption rose 0.6%, in the April-June window. Both figures were also revised Thursday.

Concerns over personal spending during the remainder of the fiscal year to the end of March are not so strong, as analysts expect last-minute demand ahead of Japan's sales tax increase to 8% from 5% in April to prop up consumer spending.

But weaker exports could become a major threat Mr. Abe's mission to haul the economy out of its 15-year-long deflationary malaise. Exports have been hit by decreased demand for cars from the U.S. while sales in emerging Asian economies have been hurt by financial market speculation over the Federal Reserve's plans to downsize its asset-buying program.

Government-funded public works helped prop up the third-quarter growth. Public works spending rose 6.5% from the previous three-month period, mostly as a part of the government's Y10.3 trillion stimulus package earlier this year. Ahead of the tax increase, Mr. Abe is compiling another package worth Y5 trillion.

Corporate capital expenditure was firm as it recorded a 0.2% increase. Investment on housing was also strong on the back of Japan's ultra-low interest rates and rush demand before the sales tax goes up. Housing investment expanded 2.7% on quarter.

Thursday's data also showed that the GDP deflator, a measure of inflationary pressures, fell 0.3% from the previous quarter, when it fell 0.5%.