Japan's economy beats expectations

Japan's economy expanded more than estimated in the second quarter, driven by exports and an upward revision to capital spending.

Gross domestic product grew at an annual 1.5 per cent in the three months ended June 30 - faster than the 0.4 per cent reported last month. In nominal terms, GDP shrank 0.6 per cent from the previous quarter.

But the figure puts growth in line with the US and indicates the expansion didn't grind to a halt last quarter.

Slower global growth and the yen's advance to a 15-year high against the dollar are among risks that may derail the country's export-led recovery.

"The upward revision could get rid of concern over a double-dip recession for now," said Takahide Kiuchi, chief economist at Nomura Securities in Tokyo. "Still, Japan's economy may face a moment of truth in the fourth quarter."

The Bank of Japan bolstered a credit programme and Prime Minister Naoto Kan pledged fresh stimulus to help the recovery on August 30, two weeks after preliminary GDP data showed growth was less than a fifth of the pace economists estimated.

The central bank kept liquidity injections unchanged on September 7 after expanding a bank-loan programme by 10 trillion.

BOJ Governor Masaaki Shirakawa said this week that the bank was ready to take more action if needed and he was "well aware" the yen might hurt business sentiment. Kan pledged to channel 920 billion to buttress domestic demand last week.

"Chances for further easing will likely increase toward the year-end when the Government may intensify its debate over whether to compile another stimulus and extra budget," said Junko Nishioka, chief economist at RBS Securities.

"The biggest trigger may be a stronger yen and weaker stocks."

- BLOOMBERG