Japan factory output jumps

30 Dec, 2009

Japan's industrial output rose for the ninth consecutive month in November, driven by strong exports and domestic subsidies, but swelling inventories and falling wages threaten to end the longest climb in more than 12 years. Demand from the United States and Asia contributed much to last month's 2.6 percent rise, government data showed on Monday, supporting the Bank of Japan's view that the world's second-largest economy will continue its moderate recovery next year.
Economists say overseas demand should prevent a return to recession next year. However, declining wages and weak labour market may outweigh the effect of government subsidies on energy efficient goods, forcing manufacturers to curb output and start selling down inventories built up in anticipation of better sales.
"The latest data shows that Japanese makers of automobiles and home electrical appliances are still hiking their output thanks to the continuing effect of government stimulus as well as strong exports to Asia," said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo.
"But a slowdown is still expected early next year as the effect of stimulus will likely fade." Japan's wages fell for the 18th consecutive month in November from a year earlier, in a sign that deflation, or persistently falling prices and incomes, was entrenched. This exposes the central bank to more pressure from the government to ease monetary policy further.
November's output rise was the biggest in six months and exceeded a median market forecast for a 2.4 percent rise. The benchmark Nikkei closed at a four-month high in reaction to the data and due to hopes that a weakening yen will help the country's exporters.
Production of cars and car parts powered much of the rise output, with Japan's government having extended subsidies on energy efficient goods until late 2010 and as stimulus measures in other countries support a recovery in overseas demand.
Production of transport equipment rose 5.9 percent, the ninth straight month of gains. General machinery output, which includes car parts, rose 6.4 percent, the seventh month of increase. Manufacturers surveyed by the government expect output to rise 3.4 percent in December and further increase by 1.3 percent in January.

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