* GDP growth seen at 0.4 percent in Q4 of 2010
* Slowdown still expected in Q1, Q2
* Core CPI falls to shrink to 0.9 percent in Q3
By Rie Ishiguro
TOKYO, Jan 21 (Reuters) - Japan's economy will probably grow somewhat stronger than previously thought towards the end of this year on fresh government stimulus, while recent energy price rises may tame deflation, the latest Reuters poll showed.
Gross domestic product (GDP) is forecast to grow 0.4 percent in the third and fourth quarters, faster in the last three months of the year than the 0.3 percent predicted in the December survey, based on the median estimate of almost 30 economists polled Jan. 14-21.
The result came as Japan's novice government last month agreed on a 7.2 trillion yen ($79 billion) stimulus package including child allowances, aiming to prevent the economy from tipping back into recession as deflation persists and a strong yen threatens exports.
The economy began recovering from the worst postwar recession in April-June last year thanks to stronger exports and domestic consumption but does not have a lot of momentum.
"The previous stimulus will likely run its course in the first half, causing the economy's recovery to come to a stall. But sizable government spending is set to follow in and outside Japan," said Seiji Shiraishi, chief economist at HSBC Securities Japan.
The economy is still largely driven by exports, analysts warned, throwing into question how sustainable the recovery is.
Economists continued to anticipate a slowdown to an already sluggish pace in the first half, but only a small minority of them predicted a contraction, meaning the risk of a double-dip recession is low.
They expect the jobless rate to be at 5.4 percent in the current quarter, against 6.0 percent expected in the October poll, down from a record 5.7 percent in July last year.
Deflation, meanwhile, is seen persisting well into the first half of next year as was in the previous survey, because domestic consumption is playing a greater part recently in pushing down prices now that the effect of oil price falls from record highs in 2008 has waned.
But the pace of falls in core consumer prices will probably narrow more quickly towards the first half of next year than initially thought thanks to recent gains in gasoline and other commodities prices.
The latest poll predicted an average 0.9 percent fall in core CPI in the third quarter, smaller than a fall of 1.1 percent in the December poll, after declining 1.3 and 1.2 percent respectively in the first and second quarters.
Japan's core consumer prices, which exclude volatile fresh food items but include energy costs, fell a record 2.4 percent in August last year.
The magnitude of falls is seen narrowing further to reach 0.3 percent in the second quarter of next year, the poll found. But some say that won't be enough to get Japan out of a quagmire of broadly declining prices.
"Japan will likely be mired in deflation for another three to four years. Demand shortages cannot be solved unless Japan achieves high economic growth for a long time," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Analysts said that risk of prolonged deflation will likely prevent the Bank of Japan from carrying out interest rate hikes for quite a long time.
The poll showed that the BOJ will keep the overnight call rate at 0.1 percent until at least the second quarter of 2011, unchanged from the previous month's poll.
For a preview of next week's meeting see
The central bank cut interest rates to 0.1 percent in December 2008 and implemented various unconventional steps, such as buying corporate debt, to help ease the pain from the global financial crisis.
(Polling by Bangalore Polling Unit; Editing by Andy Bruce) ($1=90.43 Yen)