Japan's factory output rebounded in September to its highest level in nearly one-and-a-half years as robust domestic demand driven by the government's stimulus policies and a looming tax rise compensated for slowing exports to the rest of Asia. The gain reinforces the view the world's third-largest economy is recovering moderately, and may nudge more firms to meet Prime Minister Shinzo Abe's requests to raise base salaries next year.
One caveat is that demand may be being inflated as consumers bring forward purchases to beat an increase in the sales tax from next April, and so may soften into the middle of 2014. Still, some executives of Japan's big car and electronic makers have recently sounded upbeat about the prospects for salary increases after keeping wages largely flat amid two decades of economic stagnation.
"It does seem like Japanese large corporates are at least saying they are willing to think about raising basic wages," Jerry Schiff, the International Monetary Fund's mission chief to Japan, told Reuters on Tuesday. Industrial output rose 1.5 percent in September, less than a median market forecast of a 1.8 percent increase but bouncing back from a 0.9 percent decline in August, data from the Ministry of Economy, Trade and Industry showed on Wednesday.
The output index rose to 98.5, the highest since May last year, prompting the government to raise its assessment on output to say it is "picking up." Automakers ramped up production on brisk demand at home and in the United States, and computer makers enjoyed an increase in orders from Japanese financial institutions benefiting from rising trade volume in equities, the ministry said.
"The data showed a clear pick-up in factory output led by firm domestic demand," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. Manufacturers surveyed by the ministry expect output to rise 4.7 percent in October but slip 1.2 percent in November, as slowing overseas demand clouds the outlook. The output data will be among factors BOJ policymakers will scrutinise at a policy review on Thursday, when they are expected to slightly revise up their economic growth forecast for the next fiscal year.