Japan's economy expanded at an annualized 4.8 percent in real terms during the October-December period of last year, beating economists' average forecast of 3.8 percent, a government preliminary report showed Thursday.

The gross domestic product, the broadest measure of a country's economic activity, grew 1.2 percent from the previous quarter, the eighth straight quarterly rise, the Cabinet Office said.

The quarterly growth was buoyed by a rebound in consumer spending after unfavorable weather discouraged shoppers in the July-September quarter, and by solid corporate capital spending, it said.

Economists, however, noting that consumer spending remains flat, argue that the stronger-than-expected GDP figure is not reason enough for the Bank of Japan to push another interest rate hike.

"The fourth-quarter GDP figure proves that Japan's economy is steadily growing, but consumer spending, which the BOJ is closely watching, has not set a strong trend," said Takashi Imamura, chief economist at Marubeni Research Institute.

BOJ Gov. Toshihiko Fukui said last month the BOJ Policy Board maintains a key interest rate at 0.25 percent -- the lowest interest rate among major economies -- due to weak consumer spending and low inflation.

The GDP deflator, which measures the degree of inflation, dropped 0.5 percent in the fourth quarter following the revised decline 0.7 percent in the previous quarter.

The BOJ has kept the rate unchanged since last July, when it carried out a rate hike for the first time in six years.

The central bank will convene a two-day policy meeting next Wednesday.

"Consumer spending in the latter half (of 2006) remained flat and this consumer spending figure in the October-December quarter is not a decisive factor to raise interest rates," said Yasunari Ueno, Mizuho Securities chief market economist, citing prolonged deflation and a media report that the BOJ's decision is based on July-September data as well.

Consumer spending, which constitutes more than half of GDP, rose 1.1 percent in October-December from the previous quarter, rebounding from the revised 1.1 percent drop in the last quarter.

The rise was mainly due to increases in travel, as well as brisk sales of autos and flat-screen TVs during the yearend shopping season. Mobile phones also became a hot-selling item with the introduction of number portability, a governmental official said at a briefing.

The latest growth figures came on the heels of weak reports on household spending, retail sales and wage increases, although exports and industrial production surged to a record.

Meanwhile, corporate capital spending jumped 2.2 percent in the fourth quarter, following a revised 0.8 percent increase in the previous quarter.

Capital expenditures in software, general industrial machinery and construction expanded, the governmental official said.

Exports, one of the key drivers of Japan's economic growth, rose 1.1 percent following a 2.4 percent rise in the last quarter, while imports remained unchanged.

Marubeni Research's Imamura pointed out that the export growth is "slowing and will probably slow more" because of overseas factors.

The U.S., Japan's main export destination, is suffering from a housing slump, and China, another major trade partner, is probably seeing an effect from its credit-tightening, Imamura said.

But he is optimistic about wage increases.

"Companies are forced to raise salaries. Otherwise, they cannot secure manpower," he said. "They cannot do anything if they cannot hire human resources, so a domestic-led recovery is possible."

Economic and Fiscal Policy Minister Hiroko Ota said at the news conference the same day that household spending still remains flat.

"We are still seeing weakness in consumption due to stalling per capita wage increases," she said.

Wages rose 1.1 percent in 2006 from the previous year, but this was due to an increase in employees, the government official said.

Economists say Japanese firms recorded robust profits and increased capital investment, paid debts and raised dividends, but not salaries.

Taxi drivers, often considered the most reliable street economy watchers, agree.

"During the day, more and more businesspeople started using taxis as companies probably started to pay the expense, but at night people don't use taxis because they are still tightening their belts because they have to pay on their own," said a cabby in Tokyo who declined to be named.