By Tetsushi Kajimoto
TOKYO (Reuters) - Japan's economy grew faster over April-June than initially estimated, the Cabinet Office said on Thursday, with upward revisions to capital expenditure and inventories, but the lack of a strong growth driver is seen undermining momentum for the rest of this year.
The Cabinet Office said the economy grew at a 0.7 percent annualized rate over April-June, an upward revision of the preliminary reading of 0.2 percent growth, in which the strong yen and weak demand were seen hurting exports and capital spending.
Japan's economy, the world's third largest, is seen lacking momentum in the current quarter and beyond, following a recent run of weak export, factory output and household spending data.
Unless overseas economies improve and the yen's gains fade away, the economy is at risk of faltering later this year, before Prime Minister Shinzo Abe's government fully implements the stimulus package it unveiled last month, analysts say.
The tame economic outlook will keep the Bank of Japan under pressure to ease policy further as the central bank conducts comprehensive assessment of the effects of its stimulus program at its Sept. 20-21 rate review.
"The economy is likely to remain stagnant in July-September and October-December in the absence of a growth engine," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"Household income gains are not strong enough to drive up private consumption, while the yen's gains are expected to undermine exports and capital spending gradually but surely."
The revised gross domestic product (GDP) data compared with economists' median estimate of an annualized 0.0 percent reading in a Reuters poll.
The figure translates into quarter-on-quarter growth of 0.2 percent in real, price-adjusted terms, against an initial reading of 0.0 percent.
Capital expenditure, a key component of GDP, fell 0.1 percent for the quarter, versus the preliminary estimate of a 0.4 percent decline.
Inventories contributed 0.1 percentage point to growth, versus the preliminary slightly negative contribution recorded.
Private consumption, which accounts for roughly 60 percent of the economy, rose 0.2 percent, unchanged from the preliminary estimate.
Taken together, domestic demand contributed 0.4 percentage point to growth, versus the initial 0.3 percentage point registered. Net exports knocked 0.3 percentage point off growth.
With economic growth having ground almost to a halt and inflation sliding further away from the central bank's 2 percent target, most analysts expect the BOJ to loosen policy this month.
BOJ Governor Haruhiko Kuroda signaled his readiness on Monday to ease policy further, shrugging off some concerns that monetary stimulus is reaching the limits of its effectiveness.
(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)