Japan’s Factory Output Jumps in Sign of Recovery in Economy

(Bloomberg) -- Japan’s factory output expanded at its fastest pace in more than three-and-a-half years in October, offering evidence the economy started the current quarter with a rebound from a contraction in a disaster-struck summer. The outlook for the coming months is less certain.

Separate data showed inflation in Tokyo, an early indicator of nationwide price movements, remained at 1 percent for the third straight month, while unemployment increased slightly.

Key Insights

• Factory output for October offers one of the best early looks at the state of Japan’s economy in the fourth quarter, after a series of natural disasters disrupted activity in the third quarter, causing gross domestic product to shrink.
• While the data showed a strong start to this quarter, helped by a sharp jump in production of cars and electronics, economists noted that other recent indicators point to weakness in November and a possible fall in output to come that would moderate the growth trend.
• "We shouldn’t jump for joy just yet after this strong rebound," said Yoshki Shinke, chief economist at Dai-Ichi Life Research Institute, flagging softness in the Chinese and European economies are slowing global growth and weighing on Japan.
• Analysts’ early take on inflation is that the peak for now has been reached, with lower oil prices set to push down on price growth. "It’s certain we’re going to see inflation break below 1 percent going ahead," said Taro Saito, an economist at NLI Research Institute.
• While the rise in unemployment and a fall in the proportion of jobs available came as a surprise, the overall picture for Japan’s labor market is tightness that should support wage growth and inflation.

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• Industrial production jumped 2.9 percent from September, after falling in five of the previous six months, economy ministry data showed Friday. Economists forecast a gain of 1.2 percent. Output increased 4.2 percent from the same period a year earlier.
• Consumer prices excluding fresh food in Tokyo rose 1 percent in November, matching economists’ forecasts.
• The jobless rate ticked up to 2.4 percent in October. The median estimate was 2.3 percent.
• The job-applicant ratio edged down to 1.62 in October, compared with an estimate of 1.65.

--With assistance from Emi Urabe.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Paul Jackson, Henry Hoenig

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