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Japan revised GDP up 3.8 percent in April-June

Elaine Kurtenbach, AP Business Writer

TOKYO (AP) -- A revised estimate shows Japan's economy expanded faster in April-June than earlier reported, clocking a real annualized growth rate of 3.8 percent thanks to higher spending on private and public investment.

The first preliminary estimate had put the rate of growth for the world's third-largest economy at 2.6 percent.

The Cabinet Office also said Monday that the economy expanded 0.9 percent from the previous quarter, compared with an earlier estimate of a 0.6 percent increase.

The stronger data make it more likely the government will go ahead with a planned sales tax increase that some economists worry could slow the recovery, but which is needed to help curb the country's massive national debt.

The news, coupled with Tokyo's selection over the weekend to host the 2020 Summer Olympics, prompted a rally on the Tokyo Stock Exchange, where the benchmark Nikkei 22 index opened 2.7 percent higher Monday.

Monday's GDP revision actually showed lower consumer and residential spending, which are needed for a sustained recovery given the large role consumption plays in Japan's economy.

But the data did show a 3 percent increase in public investment, compared to the earlier estimate of a 1.8 percent increase. It also showed a slight increase in private, non-residential investment. Data on exports and imports remained unchanged.

Prime Minister Shinzo Abe has made restoring growth a key priority, setting a 2 percent inflation target he says is needed to break Japan from deflation and get the economy back on track after more than 20 years of stagnation.

Japan's population began shrinking several years ago and is rapidly aging, limiting its innate growth potential. The revision in private investment is an encouraging sign, but so far Japanese companies have not demonstrated a renewed confidence in the country's economic potential by investing heavily in the home market or raising wages.

The Tokyo Olympics, still seven years off, are expected to provide a welcome boost, though much of that would be in construction, where the government is already spending heavily as part of its stimulus program.