Japanese factory output rose more than expected in October in a tentative sign that flooding in Thailand had a smaller impact on supply chains than initially feared, but the outlook is clouded by the threat of Europe's deepening debt woes. Industrial output rose 2.4 percent in October, beating a median forecast for a 1.0 percent increase. That followed a 3.3 percent decline in September, which was the first drop since the devastating earthquake and tsunami in March.
The data suggests that the world's third-largest economy, which recovered from a slump caused by the quake, stands a better chance of avoiding a soft patch before an expected boost from a $155 billion reconstruction budget still some months away. Policymakers have tried to soften the impact of yen rises through currency market intervention and monetary easing, but they may feel pressure to act again to ensure recovery remains on track at least until reconstruction spending kicks in.
"Carmakers are increasing production to make up for production lost after the earthquake," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting. "Also, the impact from flooding in Thailand is less then expected. The trend is output is recovering, but there are a lot of risks to exports because of Europe's debt problems."
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to fall 0.1 percent in November and increase 2.7 percent in December. The forecast for November likely reflects to some extent the effect of output disruptions caused by the severe floods in Thailand, Miyagawa said.
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