Japan's economy has rebounded, government data showed Thursday, in welcome news for its next prime minister following Fumio Kishida's decision to quit.

The 0.8-percent expansion in the second quarter came after the world number four economy slumped by 0.6 percent in the first three months of the year.

The rise, supported by increased activity and increased capital and public investment, beat market expectations that output would grow 0.6 percent.

Hiroyuki Ueno, chief strategist at SuMi Trust, pointed to improving consumer sentiment thanks to higher wages and a recovery in auto production after several scandals.

Toyota subsidiary Daihatsu in particular halted production for months from late 2023 after admitting it had engaged in safety test irregularities for years.

Moody's economist Stefan Angrick cautioned that it would be "premature to conclude that Japan's economy is out of the woods."

"(The) headwinds facing the economy are substantial. Exports are struggling, and household finances are stretched," he said.

On Wednesday Kishida said he would step down next month after almost three years in office after dropping out of the race to retain the leadership of his party.

His poll ratings sagged badly because of price rises that have eaten into Japanese incomes and a slew of scandals.

The yen also fell sharply and the economy struggled to gain traction despite major stimulus efforts including tax cuts.

Kishida could in theory have governed until 2025 but analysts said he threw in the towel after losing support within the Liberal Democratic Party (LDP), which has ruled Japan almost without a break for decades.

Possible successors include digital minister Taro Kono and economic security minister Sanae Takaichi, who would be Japan's first female premier and who is popular with the right wing of the party.

Other names floated in local media are Shigeru Ishiba, former party number two, and Shinjiro Koizumi, former environment minister and son of ex-premier Junichiro Koizumi.

On Thursday, the 79th anniversary of the end of World War II, both Takaichi and the younger Koizumi visited the Yasukuni shrine in Tokyo that honours Japan's war dead including convicted war criminals.

Kishida, 67, never went to the site officially as prime minister, but visits by predecessors including Shinzo Abe angered China, South Korea and other countries that suffered under Japanese wartime occupation.

Kishida won plaudits abroad while in office, siding decisively with Ukraine after Russia's invasion.

With US encouragement, Kishida firmed up Japanese defence policy to counter China, hiking spending and moving to acquire "counterstrike" weapons.

His leadership has been "nothing short of historic", US President Joe Biden, who hosted Kishida at the White House in April, said in a statement.