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In this Sept.7, 2013 file photo, Japan's Prime Minister Shinzo Abe, addresses the International Olympic Committee session during the Tokyo 2020 bid presentation in Buenos Aires, Argentina.

Natacha Pisarenko/AP

Japan's economy stumbled in the third quarter but beat expectations, calming doubts about Prime Minister Shinzo Abe's three-part plan to lift the country out of a funk that has lasted decades.

The economy grew by 1.9 per cent in the three months ending in September, beating expectations of 1.7 but lagging the 3.8-per-cent gain in the year-earlier quarter.

Japan's economy is on the right track, Société Générale said in a research note.

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But the slowdown in growth is a sign Mr. Abe's 11-month-old economic stimulus strategy, known as Abenomics, is losing its ability to boost factory output, beat deflation and spur consumer spending.

The main driver of the economic growth in the quarter was government spending, as consumer spending rose by just 0.1 per cent and exports fell by 0.6 per cent.

What is Abenomics?

Shinzo Abe returned to the prime minister's office in December, 2012, and began implementing an economic stimulus program with three main thrusts: a loose monetary policy, public spending and deregulation.

How have markets performed?

Investors have profited under Mr. Abe's reign. The benchmark Nikkei stock index has risen by 39 per cent this year amid optimism the stimulus program would lift consumer spending and company profits.

How about Japan Inc.?

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There are new signs Japan Inc. is making more money, aided by a lower currency that is boosting overseas sales.

Mitsubishi UFJ Financial Group and Mizuho Financial Group, respectively Japan's largest and second largest lenders by assets, posted strong results on Thursday for the first half of the financial year.

For the six months ending in September, Mitsubishi's net profit grew 83 per cent from a year earlier to ¥530.2-billion ($5.33-billion), and Mizuho's grew 133 per cent to ¥429.8-billion.

And while sales at Toyota, Nissan, Honda and Mitsubishi have been flat, their profits have climbed a the yen has fallen.

What's next?

After leaving the recession of 2012 behind it, Japan shows no signs of slowing as Abenomics works it way though the economy.

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"Economic growth is expected to accelerate in the final quarter of this year. Despite the soft headline figure today, there's no need to be pessimistic about the outlook," said Junko Nishioka, chief economist at RBS Securities.

"The government's stimulus package is likely to help boost capital expenditure. The ball is in the government's court so I don't think the Bank of Japan will come under pressure for further monetary easing any time soon."

With files from Reuters and the Associated Press

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