Japan lowers third-quarter growth reading

TOKYO--The Japanese government on Monday lowered the reading of the country's growth over the third quarter, saying capital expenditure was weaker than first thought, as lackluster foreign demand took steam out of a brisk rebound fueled by the economic policies of Prime Minister Shinzo Abe, known as "Abenomics."

Japan's gross domestic product, or the total value of goods and services produced, grew an annualized 1.1% in the July-September period from the previous quarter, the Cabinet Office said, changing a preliminary 1.9% increase announced three weeks ago.

That's a sharp deceleration from the first half of this year, when the Japanese economy grew around 4.0%, outperforming the U.S. Economists surveyed by the Nikkei and The Wall Street Journal had expected a downward revision to 1.5% growth. The U.S. economy overtook Japan in the third quarter, registering a revised 3.6% expansion.

As the New Year approaches, Japanese government and central bank officials are increasingly counting on a recovery in exports and domestic business investment, which they see as essential if the economy is to continue its rebound after a planned sales tax increase in April next year. But the revised GDP data contained few encouraging signs, with the Cabinet Office revising lower capital expenditure to a flat reading from preliminary 0.7% growth.

The Cabinet Office also cut the reading of inventories, saying they added 0.7 percentage point to the annualized quarterly growth.

In the first six months after Prime Minister Shinzo Abe's return to power a year ago, his radical policy shift known as Abenomics helped drive Tokyo stock prices higher, which led the wealthy to open their wallets, causing a surge in consumer spending. Centering on an aggressive pumping of money into the economy by the Bank of Japan, Abenomics also caused the yen to weaken against the dollar, improving the bottom lines of Japan's exporters, such as Sony Corp. and Toyota Motor Corp.

But the recovery lost steam in the third quarter as stock prices leveled off and the yen's fall stalled, and as emerging market economies--the destination for two-thirds of Japanese exports -- slowed more than expected.

Write to Takashi Nakamichi at takashi.nakamichi@wsj.com