Welcome economic relief for Prime Minister Koizumi

Growth in the three months to June was 1.0%, even better than the 0.6% estimate published in August.

The news will come as a relief to Prime Minister Junichiro Koizumi, who faces an internal party election this month which he must win to keep the top job.

His opponents in the Liberal Democratic Party have criticised his economic package, calling for huge tax cuts to kickstart the economy.

The news helped support banking shares, although the broader market ticked down on pressure from a weak Wall Street.

Help from abroad

The renewed vigour in the second quarter gives Japan annualised growth of 3.9%, faster even than the US performance in the same period.

There's no doubt the economy is recovering, but the figures are probably overstating it Toshikimi Kaneki Sumitomo Trust and Banking economist

Sales abroad are driving the gains, with the current account surplus - the broadest measure of trade - leaping 34.6% in the 12 months to July.

For once, the export performance on which Japan is relying to pull itself out of the doldrums is being reinforced to some extent by the domestic market.

Personal consumption underwent an unexpected surge in the second quarter - although the figures may have been flattered by cancellations of foreign trips in the face of the Sars virus.

But the government is still seen as too cautious in its economic policies and many economists warn that it remains much too early to be sure of genuine revival.