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TOKYO—The economy in Japan, as in many developed countries, is about halfway back from the worst of the pandemic. The question now is whether to jolt it back to full health with a quick dose of government spending or focus more on getting the private sector to invest.

The world’s third-largest economy after the U.S. and China grew at an annualized pace of 21.4% in the July-September quarter. That is the fastest in 40 years of comparable records, yet the Japanese economy is still about 6% smaller than at its peak a year ago.