Japan's economy grew 5% in the third quarter compared with the second quarter - the fastest expansion since the fourth quarter of 1968.
On an annualized basis, Japan's gross domestic product grew 21.4% during the period. Asia's second largest economy, however, remains almost 6% smaller than it was during the third quarter of 2019.
The economic damage from COVID-19 was at its most severe in the second quarter. The economy shrunk an annualized 28.1% from April to June - Japan's worst postwar contraction.
This third quarter saw domestic consumption improve by 4.7%, fueling the rebound. On the other hand, business investment fell 3.4% - adding more misery to the 4.5% drop in the second quarter. Economists say the investment picture underscores the bleak outlook for many businesses fighting to stay afloat.
They said Japan's economy was reeling from a rise in consumption tax imposed in October 2019.
The faltering recovery is complicating plans by prime minister Yoshihide Suga to dig Japan's economy out of the economic slowing created by the pandemic. It might, however, accelerate approval of a third supplementary budget for the current fiscal year.
Last week, Suga said Japan would launch a third supplementary budget with a COVID-19 rescue package that might reach up to $286 billion (30 trillion yen). Suga told his Cabinet members to "ensure the economy continues to pick up and bring it back to a growth path led by private demand."
Economy Minister Yasutoshi Nishimura said the proposed package would cushion the blow from COVID-19, assist structural changes in the economy and boost productivity through digitalization.
"We'll want to consider government spending that will attract private investment," said Nishimura.
Japan has issued a combined $2.2 trillion in two previous stimulus packages that included cash payments to households and small business loans.
Nishimura said the third package would help bridge Japan's negative output gap, an outcome that sees actual output less than the economy's full capacity. This gap stood at about $542 billion in the second quarter.
He also revealed the new stimulus package will still focus on shifting Japan to a "green" society, after the government pledged in late October to cut greenhouse gases to zero by 2050 and transform into a carbon-neutral society.
