By Satoshi Sugiyama and Leika Kihara
TOKYO (Reuters) -Japan's economy expanded in July-September at a faster pace than initially reported thanks to upward revisions in capital investment and exports, keeping alive market expectations for a near-term interest rate hike by the central bank.
But a downward revision on consumption underscores the fragile nature of the economic recovery, and leaves uncertainty on how soon the central bank could raise interest rates again, with a December hike not guaranteed either, some analysts say.
The data will be among factors the BOJ will scrutinise at its next policy meeting on Dec. 18-19, when some analysts expect a hike in short-term interest rates from the current 0.25%.
"It does support the case for a December rate hike, though the weakness in consumption is a concern," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Gross domestic product (GDP) rose an annualised 1.2% in the three months to September, the Cabinet Office's revised data showed on Monday, higher than economists' median forecast and the initial estimate of 0.9% growth.
The revised numbers translate into a quarter-on-quarter expansion of 0.3% in price-adjusted terms, compared with a 0.2% growth in preliminary data released on Nov. 15.
The upgrade was caused in part by a smaller-than-expected decline in capital expenditure, which fell 0.1% in the third quarter compared with a preliminary reading of a 0.2% drop. It compared with economists' estimate for a 0.1% rise.
External demand, or exports minus imports, knocked 0.2 percentage point off growth, less than a 0.4 point drop in the preliminary reading, the revised GDP data showed.
Private consumption, which accounts for more than half of the Japanese economy, rose 0.7%, less than the preliminary reading of 0.9% growth.
"While the data isn't something that gives a huge boost to rate hike expectations, it won't be a hindrance to raising rates either," said Uichiro Nozaki, an economist at Nomura Securities.
The upward revision still leaves third-quarter GDP growth much slower than an annualised 2.2% expansion in the April-June period, which was largely in reaction to a contraction in the first quarter caused by output disruptions in some auto plants.
The BOJ phased out a decade-long, radical stimulus in March and raised short-term interest rates to 0.25% in July on the view Japan was progressing towards sustainably achieving its 2% inflation target.
Governor Kazuo Ueda has signalled readiness to raise rates again if the BOJ becomes more convinced that inflation will durably stay around 2% backed by rising wages and robust domestic demand.