(Reuters) -- Japan's economy shrank less than initially estimated in the fourth quarter as companies ramped up capital expenditure, but the current account swung to a record deficit in January as a shift away from nuclear power pushes up fossil fuel imports.

The revision to GDP showed a 0.2 percent contraction, bang in line with the median market forecast as companies look to an increase in demand due to reconstruction of the country's tsunami-battered northeast coast.

The current account balance also took a hit in January because Chinese Lunar New Year holiday weighed on exports, but economists see the result as a one-off and expect annual current account to remain in surplus for the next few years.

The figures on GDP could be a welcome sign for Prime Minister Yoshihiko Noda as he tries to muster support for next fiscal year's budget and a controversial plan to double the 5 percent sales tax.

The economy will resume growing in the first quarter as exports increase and as rebuilding after the earthquake proceeds. The economic recovery will continue into the new fiscal year starting from April, said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co in Tokyo. There are a lot of risk factors, such as a strong yen and Europe's debt crisis, but these risks have been receding.

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GDP in Japan, U.S., Europe http://link.reuters.com/tys56s

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On an annualized basis, the economy shrank 0.7 percent, also in line with forecasts, and less than a preliminary 2.3 percent annualized contraction, the Cabinet Office data showed on Thursday.

Capital expenditure, the main driver of the upward revisions, rose 4.8 percent, slightly less than a 5.0 percent rise expected by economists, but well ahead of a preliminary reading of a 1.9 percent rise.

Larger-than-expected gains in industrial production and bullish output forecasts for the first quarter have raised hopes that Japan's economy will gather momentum this year.

Japan's current account balance swung to a record deficit of 437.3 billion yen ($5.41 billion)in January, deeper than the median estimate for a 317.8 billion yen deficit.

Japan logged its first shortfall since January 2009 due to a gaping trade deficit as exports plunged on holiday-thinned Chinese demand while higher fuel costs and nuclear plant shutdowns after last year's earthquake pushed up energy imports.

The yen slipped to trade at 81.26 per dollar as a current account deficit raises doubts about how long Japan will be able to fund its large public debt domestically.

Economists say it may be some time before Japan consistently runs a deficit in its current account given the income generated on investments overseas.

The trade balance is likely to stay in deficit this year as we import more energy to offset the declining use of nuclear power, said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting.

The current account should swing back to a surplus as we still have a surplus in the income account. Japan should be able to finance its debt for the time being. But if it is a question of what happens five to 10 years from now, we cannot be so certain.

The Bank of Japan is likely to leave monetary policy unchanged at its next meeting on March 12-13. The BOJ surprised markets on February 14 by easing monetary policy with a 10 trillion yen ($123.86 billion) increase in government bond purchases and set an inflation goal of 1 percent, signaling more vigorous efforts to end deflation.

($1 = 80.8350 Japanese yen)

(Writing by Stanley White; Editing by Tomasz Janowski and Chris Lewis)

Earthquake Gdp Japan Trade balance