Japan's car sales hit top gear as recovery picks up speed

Japan’s car sales surged in October, rising at the fastest pace in more than eight years as the economy continues to bounce back in the fourth quarter from a record economic contraction.

Vehicle sales, one of Japan’s earliest monthly economic indicators, rose 31.6% from a year earlier, according to the Japan Automobile Dealers Association on Monday. The large jump partly reflects the distortion of a -26.4% drop 12 months ago after a sales tax increase triggered a sharp drop in spending on big ticket items.

“Auto sales are showing a stronger pickup than expected," said Taro Saito, head of economic research at NLI Research Institute. “Automakers are back in production and many Japanese households have extra money to spend thanks to the government’s cash handouts."

Like the overall recovery in the economy, the pace of sales is unlikely to continue at the current rapid pace. An increasing number of Japanese businesses are announcing sharp profit falls that point to lower winter bonuses and smaller wage increases.

While some economists expect annualized economic growth in the third quarter to top 20% following a 28% contraction in the previous three months, the expansion is widely expected to slow to a single digit pace in the quarter through December.

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