Japan's government revised ‍up its economic forecast for the fiscal year to next March and projected that growth would accelerate in the following year, on the view that its massive stimulus package will boost consumption and capital expenditure.

Under the latest projections approved by the cabinet on Wednesday, the government expects Japan's economy to expand 1.1 percent in the current ‍fiscal year, up ‍from 0.7 percent growth estimated in August due to the smaller-than-expected hit ‌from US tariffs.

Growth is expected to accelerate to 1.3 percent in fiscal 2026 as robust consumption ​and capital expenditure offset soft overseas demand, according to the projections.

The government said it expects consumption to rise 1.3 percent next fiscal year, the same pace projected for fiscal 2025, as tax breaks and moderating inflation underpin household spending.

Capital expenditure will likely increase 2.8 percent in fiscal 2026, faster than an ‍estimated 1.9 percent ‌rise for the current fiscal year, due ‌in part to the effect of subsidies and tax breaks aimed at promoting investment in crisis management and growth areas.

The government will use the estimates when it drafts the next fiscal year's state budget, which will be finalised on Friday.

The ‌administration compiled a ​21.3 trillion yen ($136.7 billion) stimulus package in November that included payouts to families with children, subsidies to cut utility bills, and fiscal spending to promote investment in areas such as infrastructure, artificial intelligence and semiconductor chips.