Japanese factory output rose more than expected in December to mark a second straight month of gains, signalling that solid overseas demand will help the economy to resume its recovery in coming months. Manufacturers expect output to rise further in January followed by a slight fall in February, underscoring the Bank of Japan's view that firm exports to emerging Asia will support corporate activity and pull Japan's economy out of a lull around the spring.
"The output numbers are very strong. For car makers, they lowered production after government incentives expired in September but they are ramping up production again as exports are recovering," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.
Industrial output rose 3.1 percent in December, more than a median market forecast for a 2.9 percent increase, on strong overseas demand for cars and electronic parts, the Ministry of Economy, Trade and Industry said on Monday. Manufacturers surveyed by the ministry expect output to rise 5.7 percent in January and decline 1.2 percent in February.
The government raised its assessment of industrial production for the first time since April 2009, saying output was showing signs of picking up. Adding to growing optimism over Japan's economic outlook, PMI data showed the country's manufacturing activity expanded for the first time in five months in January.
"As inventory adjustments have progressed, industrial production has started rising," said Susumu Kato, chief economist at Credit Agricole Securities. "The data supports the view that factory output will likely get back on a recovery track earlier than previously expected, helped by strong demand from emerging nations.
"The data also supports the view that the economy will emerge from a lull earlier the initially expected," Kato said, although he added that a renewed yen rise could become a risk to growth. Japan's economy likely rebounded in the first quarter after an expected slight contraction in the final quarter of last year, as companies restock inventories and exports recover from a soft patch late last year.