Japan’s economy grew by more than estimated in the third quarter due to stronger-than-expected capital spending by Japanese companies, data showed yesterday, but analysts warned of risks ahead.

The upward revision to growth in the July-September quarter amplified the impact of a rush by car buyers to use expiring subsidies and smokers who stocked up on cigarettes before a tax hike during the period.

The hottest summer on record also drove sales of items such as air-conditioners, helping spur growth in the quarter. Private consumption accounts for around 60 per cent of gross domestic product.

Japan’s annualised economic growth in the July-September quarter was revised up to 4.5 per cent from an initial estimate of 3.9 per cent, data showed, beating estimates of an upward revision to 4.1 per cent.

On a quarterly basis, growth was revised up to 1.1 per cent from 0.9 per cent.

Business investment was revised to a 1.3 per cent quarter-on-quarter rise from the 0.8 per cent gain initially estimated, adding 0.2 percentage points to quarterly expansion.

But some analysts warn of a possible contraction in the fourth quarter in the absence of such one-off factors, amid increasing signs that Japan’s economy is slowing as export growth cools.

“This weak trend will continue,” warned Hideki Matsumura, an analyst at Japan Research Institute Ltd. “Recovery is likely to be delayed until the second half of the next fiscal year.”

The health of the trade-reliant economy continues to draw concern as exports, its main engine for growth, slow because of a strong yen and waning overseas demand while domestic demand remains soft.

Japan’s economic fiscal policy minister Banri Kaieda told reporters on Wednesday that he expected growth to be “substantially lower” in the fourth quarter amid signs that companies were cutting back on investment.

Fears that the recovery is heading for further slowdown ­deepened on Wednesday as data showed the nation’s trade with the world had risen only slightly and machinery orders, a key corporate spending indicator, hafallen in October.

“The outlook is cloudier,” said consultancy Capital Economics in a research note.

“The weakness of machinery orders at the start of the quarter is certainly discouraging.”

October exports grew at their slowest pace of the year after the yen traded at 15-year highs against the dollar, hammering the competitiveness of the crucial sector.

A strong yen not only makes Japan’s growth-driving exports more expensive but erodes companies’ overseas profits when repatriated, with many firms considering sending more production overseas as a result.

It also makes imports cheaper, contributing to a damaging cycle of deflation in which falling prices prompt consumers to hold off on purchases in anticipation of further drops, clouding future corporate investment.

Japan has reduced its official interest rate to almost zero and last month passed an extra budget worth $58 billion to cover a new stimulus package aimed at averting the threat of a “double-dip” recession.

Prime Minister Naoto Kan’s second stimulus package since he came to power is designed to ease concerns over deflation and a strong yen, and includes job programmes, welfare spending and assistance for small businesses.

Mr Kan took office in June promising to slash spending and work towards cutting the country’s massive public debt, accounting for nearly 200 percent of gross domestic product.

But the state of Japan’s economy has complicated his ambitions.

With Thursday’s data, Japan stressed that over the first nine months its $3.96 trillion economy was ahead of China’s $3.95 trillion on nominal terms.

But it fell behind China in the second and third quarters, a trend that is expected to continue.

Japan remains more than 10 times richer on a per capita basis, according to the Inter-national Monetary Fund.