Is it fine to submit a paper to a journal via arXiv without updating on arXiv?
If I understand correctly, the answer is "no" and seems to be obviously so.

The journal needs the latest version of your manuscript.  The journal will acquire your manuscript from arXiv.  Therefore, you must put the latest version of your manuscript on arXiv.

In any case, there seems to be no reason not to update the version on arXiv.