Japan's economy shrank less than initially estimated in the fourth quarter as companies ramped up capital expenditure to cope with an increase in demand due to reconstruction of the country's tsunami-battered northeast coast.
The current account balance swung to a record deficit in January because Chinese Lunar New Year holidays hit exports and fuel imports bill swelled, but economists see the result as a one-off and expect annual current account to remain in surplus for the next few years.
The revision to GDP showed a 0.2 percent contraction, bang in line with the median market forecast and below the preliminary 0.6 percent decline.
The figures could be a welcome sign for Prime Minister Yoshihiko Noda as he tries to muster support for next fiscal year's budget and a controversial plan to double the 5 percent sales tax.
The economy will resume growing in the first quarter as export increase and as rebuilding after the earthquake proceeds. The economic recovery will continue into the new fiscal year starting from April, said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co in Tokyo.
There are a lot of risk factors, such as a strong yen and Europe's debt crisis, but these risks have been receding.
GDP in Japan, U.S., Europe http://link.reuters.com/tys56s
Current account, exports http://link.reuters.com/cec56s
On an annualized basis, the economy shrank 0.7 percent, also in line with forecasts, and less than a preliminary 2.3 percent annualized contraction, the Cabinet Office data showed on Thursday.
Capital expenditure, the main driver of the upward revisions, rose 4.8 percent, slightly less than a 5.0 percent rise expected by economists, but well ahead of a preliminary reading of a 1.9 percent rise.
Larger-than-expected gains in industrial production and bullish output forecasts for the first quarter have raised hopes that Japan's economy will gather momentum this year.
Japan's current account balance swung to a record deficit of 437.3 billion yen ($5.41 billion)in January, deeper than the median estimate for a 317.8 billion yen deficit.
Japan logged its first shortfall since January 2009 due to a gaping trade deficit as exports plunged on holiday-thinned Chinese demand while higher fuel costs and nuclear plant shutdowns after last year's earthquake pushed up energy imports.
The Bank of Japan is likely to leave monetary policy unchanged at its next meeting on March 12-13. The BOJ surprised markets on February 14 by easing monetary policy with a 10 trillion yen ($123.86 billion) increase in government bond purchases and set an inflation goal of 1 percent, signaling more vigorous efforts to end deflation. ($1 = 80.7350 Japanese yen)
($1 = 80.8350 Japanese yen)
(Writing by Stanley White; Editing by Tomasz Janowski)