Japan Jan output up, economy on track for recovery

TOKYO: Japanese factory output rose in January for a third straight month and manufacturers expect further gains in coming months, a sign that the economy is on track for a moderate export-driven recovery.

The data underscored the view by the government and the Bank of Japan that solid exports to Asia will underpin output and help the fragile economy to emerge from a lull soon.

But a spike in commodity costs triggered by unrest in the Middle East clouds the outlook, with some analysts worried about the damage it could inflict on corporate profits.

"The Japanese economy is likely to continue to recover due to a rebound in exports, but the pace of export growth could slow somewhat after the spring," said Takahide Kiuchi, chief economist at Nomura Securities.

"Oil prices will be a negative for Japan. The biggest concern is that this could hurt domestic demand."

Industrial output rose 2.4 percent in January, less than a median market forecast of a 4.0 percent increase, data from the Ministry of Economy, Trade and Industry showed on Monday.

Manufacturers surveyed by the ministry, however, expect output to edge up 0.1 percent in February and increase 1.9 percent in March.

Japan's economy shrank slightly in the final quarter of last year, hurt by an expiry of government incentives for car purchases and a slowdown in exports, but is widely expected to resume growing in the current quarter as exports pick up.

Underscoring the cautious optimism, Japan's manufacturing activity expanded at the fastest pace in eight months due to export demand, a survey showed on Monday.