A pick up in global growth is reviving Japanese manufacturing

The Cabinet Office expects growth of 3.5% during the current fiscal year, having previously forecast 1.8%.

Such a rate would be the country's fastest annual expansion since 1996.

The surge is being fuelled both by exports such as cars and electronics, and domestic demand driven in part by a summer heat wave.

Roasting

On Tuesday, temperatures in Tokyo touched 39.5 degrees Celsius, or 103 degrees Fahrenheit, the hottest since records began more than 80 years ago.

That is expected to boost sales of cold drinks and products such as air-conditioning equipment, analysts said.

According to Yasuo Goto, an economist at the Mitsubishi Research Institute, the effect of the record summer weather "could be quite substantial".

Although the heat-wave was a "one-off factor" which provided no guarantees that it could continue to support consumer spending, he said, it was "certainly a factor that will add momentum to the current economic recovery".

Also boosting optimism were upbeat comments by Alan Greenspan, chairman of US Federal Reserve.

Mr Greenspan said that growth in the US, the world's biggest economy and a major importer of Japanese products, was likely to pick up in coming months.

He added that the recent drop in consumer spending probably would prove to be short-lived.

Deflation

Tokyo's benchmark Nikkei 225 index added 1.5% on Wednesday after the government raised its growth forecast, with the Japanese yen also strengthening. Bonds dropped.

Earlier this month, the Bank of Japan voted unanimously to keep its near-zero interest rates on hold, as it tries to ensure a lasting recovery in the world's second-largest economy.

It, too, is forecasting faster expansion in coming months amid reports that show Japanese firms are becoming more optimistic about their prospects.

According the Wednesday's government figures, the economy expanded by an annualised rate of 6.1% in the first three months of this year.

And the cabinet office now expects consumer prices to drop by 0.1% this year, compared with its previous forecast of a 0.2% slide.