It revised its estimate of economic growth to 0.6%, up from an initial forecast of 0.5% issued late last month.

The improvement was due to Japanese firms' increasing their capital spending and their stockpiles, as orders have picked up.

The news is a boost for Japan's leaders as they put together a package of measures to tackle falling prices which have contributed to Japan's economic stagnation.

Prime Minister Junichiro Koizumi is expected to unveil his proposals on 20 September.

Fragile recovery

Japan's benchmark Nikkei stock index fell to 19 year lows in early September.

The Nikkei's drop below the 9,000 level contributed to pressure for the government to produce an economic revival package to restore the stock market's performance.

But analysts warned that Japan's export-led recovery remained weak.

One factor helping the growth figures was a downgrading of the role played by imports, which led to a stronger overall contribution from exports, but it suggested weak domestic demand.

The recovery was "likely to be relatively short-lived as exports start to fall next year," said Peter Morgan, chief economist at HSBC Securities in Tokyo.

In the short term, he said, the improvement and the recovery in capital spending would continue.

The revised data meant Japan's economic growth in the April to June period was 2.6% higher than a year earlier, rather than 1.9% as had been thought.

However, investors on the Nikkei and other Asian stock markets were not fazed during trading on the first anniversary of 11 September:

The Nikkei closed nearly 1% higher at 9,400 points.