Japan's industrial output rose strongly in January, helped by robust demand for electronics goods and steel, suggesting the fast export-led growth in the final quarter of last year had maintained its momentum. But the official forecast for output in the coming months was less exuberant, and other figures released on Friday showed stubborn price deflation and a rise in the jobless rate. Industrial production rose a seasonally adjusted 3.4 percent in January from a month earlier, the Ministry of Economy, Trade and Industry (METI) said. Economists polled by last week had forecast, on average, a rise of 2.8 percent. "A strong reading in output growth of 3.4 percent suggests that productivity growth is continuing to be led by exports," said Kiichi Murashima, an analyst at Nikko Citigroup.
The figures add to evidence the economy is pulling out of a decade of stagnation. It grew at its fastest pace in 13 years in October-December last year thanks to strong demand for Japanese electronics, cars and steel in China and the United States. Average spending by Japanese wage-earner households rose a real 3.4 percent in January from the same month a year earlier, suggesting a recovery may also be taking hold in personal consumption, the largest but weakest part of Japan's economy. The number of new houses being built surged 7.3 percent in January, while data earlier this week showed retail sales rose in the month and small companies -- the backbone of the economy -- felt the most optimistic about their prospects in three months. Other economists noted that the output figures showed a 2.5 percent rise in shipments in January and a 1.3 percent fall in inventories to record lows, suggesting companies are finding ready markets for their goods, which could spur more investment. "It was very encouraging to see inventories going down again with export demand," said Richard Jerram, chief economist at ING Securities. "This means that production should keep going up in coming quarters." Investors liked the news, pushing the stock market's benchmark Nikkei average <.N225> up over two percent to close above 11,000 for the first time in a month.
NOT QUITE THERE YET
"We have not changed our basic view that the economy is recovering steadily," Economics Minister Heizo Takenaka told a news conference. But he struck a note of caution, saying job conditions "remained severe". The unemployment rate increased to 5.0 percent in January from December's 4.9 percent. Economists pointed to other signs showing the recovery still had some way to go. Deflation remains a problem, with the core nationwide consumer price index (CPI), excluding volatile fresh food prices, falling 0.1 percent in January from a year earlier and 0.7 percent from a month earlier. METI forecast manufacturers' output -- a key component and close proxy of overall industrial production -- would fall 4.1 percent in February and rise 0.7 percent in March. "Although the January figures were strong, output growth will have decelerated in the January-March quarter," Takehiro Sato, an economist at Morgan Stanley, said. But stronger retail sales and spending should ensure that gross domestic product would not slow as sharply as industrial output, he added. In another sign production may be peaking, the /Nomura/JMMA Purchasing Managers Index (PMI) for the manufacturing sector eased to 54.6 in February from 55.7 in January. It was the ninth consecutive month above the crucial 50 level, which suggests growth, but was also the third month the index had declined, meaning growth was decelerating. The survey attributed the slowdown to the strength of the yen against the dollar, which makes Japanese goods more expensive in the United States, Japan's single largest export market. The Japanese authorities have repeatedly acted against the yen's rise, spending at least 27 trillion yen ($247 billion) since January 2003 to try to hold it down, and have breathed a sigh of relief since it started to fall back this month. "From the medium-term perspective the market is reversing its excesses and that is appropriate for stability," Zembei Mizoguchi, vice finance minister for international affairs, told reporters on Friday.//