* Q1 GDP revised annualised +6.7 pct vs initial +5.9 pct
* Capex revised up to +7.6 pct vs preliminary +4.9 pct
* Consumer sentiment, service-sector mood brighten
* BOJ Iwata keeps upbeat view, economy on track
* Travel balance turns to surplus, 1st time since 1970
(Adds BOJ Iwata quote, more data, graphic link, details)
By Leika Kihara and Tetsushi Kajimoto
TOKYO, June 9 Japan's first quarter growth
handily beat initial estimates on an unexpected surge in capital
spending, fresh signs the world's third-biggest economy is in
better shape to weather a hit to consumption from a sales tax
Capital spending, long a weak link in the economy, is a key
focus in Tokyo's campaign to engineer a revival after two
decades of sub-par growth and grinding deflation.
"Companies don't tend to ramp up spending ahead of the sales
tax hike, so the increase likely reflects improvements in
corporate profits and diminishing slack," said Mitsumaru
Kumagai, chief economist at Daiwa Institute of Research.
Japan's economy grew an annualised 6.7 percent in the first
quarter, data showed on Monday, up sharply from an initial
reading of a 5.9 percent rise, and confirmed the fastest pace of
growth since July-September 2011. The data beat the median
market forecast for GDP to rise 5.6 percent.
The upward revision was largely due to a recalculation in
capital expenditure that took into account finance ministry data
showing a solid increase in spending.
Adding to the optimism, current account data showed foreign
visitors spent more money than Japanese travelling abroad for
the first time in 44 years, boding well for Japanese companies
in the retail and tourism industry.
In other encouraging news, Japanese consumer confidence rose
for the first time in six months in May, further underscoring
recent signs that the economic pain from the sales tax hike
would be temporary. The service-sector sentiment index also
The tax, which was raised to 8 percent from 5 percent on
April 1 to fix Japan's tattered finances, has caused distortions
in data and raised worries about the outlook.
Monday's positive figures, however, back the Bank of Japan's
view the economy will recover moderately led by domestic demand,
with growing evidence of an uptick in business investment a
particularly pleasing result for policy makers.
In comments to Parliament, BOJ Deputy Governor Kikuo Iwata
sounded suitably upbeat, saying that he expects Japan's exports
to turn up as advanced nations recover.
"The Japanese economy will continue growth above its
potential rate as a trend as exports turn up and domestic demand
remains firm," Iwata told parliament, adding that the economy is
on a steady track to meet the BOJ's 2 percent inflation target.
Corporate capital spending rose 7.6 percent, up from a
preliminary 4.9 percent increase, an encouraging sign for Prime
Minister Shinzo Abe who is keen for companies to spend more of
their cash piles to drive a sustainable economic recovery.
On a quarterly basis, the economy grew 1.6 percent in
January-March, up from a preliminary 1.5 percent expansion. It
compared with a median market forecast for a 1.4 percent rise.
Some analysts warn of uncertainty ahead as companies start
to feel the pinch from an increase in the sales tax to 8 percent
from 5 percent in April.
"A surge in domestic demand helped Japan achieve high growth
in January-March. But a reactionary slump is inevitable, which
means the economy will contract in April-June," said Takeshi
Minami, chief economist at Norinchukin Research Institute.
Moreover, analysts say weak factory output and household
spending falling at the fastest pace in three years in April
point to the tax hike's chilling effect on consumer spending.
Still, there are signs the economy will overcome the
temporary dips in growth.
Under its "qualitative and quantitative easing" programme
launched in April last year, the BOJ has been aggressively
pumping money into markets on hope that banks will lend more to
companies, which will then boost wages and capital spending.
Bank lending rose 2.3 percent in May from a year earlier,
increasing for the 31st straight month and growing at a faster
pace than 2.1 percent in April, BOJ data showed on Monday.
There was little market reaction to the GDP data.
"The market is more focused on data pertaining to inflation
and its possible impact on the Bank of Japan's monetary policy,"
said Shinichiro Kadota, chief Japan FX strategist at Barclays in
The BOJ has said Japan can weather the tax hike impact and
resume a moderate recovery in July-September as exports - now a
soft spot in the economy - gradually pick up.
Reflecting the continued weakness in exports, Japan posted
its biggest trade deficit for the month of April, leading to a
smaller-than-expected current account surplus, Ministry of
Finance data showed on Monday.
But the current account data also showed that the travel
balance swung to a surplus for the first time since 1970 as
foreign visitors outnumbered Japanese travelling abroad.
(Editing by Chris Gallagher & Shri Navaratnam)