Japan factory output unexpectedly rises, economy still in low gear

Employees work at a main assembly line at the Nissan Iwaki Plant in Iwaki city, Fukushima prefecture, Japan, April 5.
Employees work at a main assembly line at the Nissan Iwaki Plant in Iwaki city, Fukushima prefecture, Japan, April 5. PHOTO: REUTERS

TOKYO (REUTERS) - Japan's factory output unexpectedly rose in April despite soft exports and earthquakes that hit southern areas of the country during the month, offering some signs of hope for a fragile economic recovery.

Manufacturers expect industrial production to rise in coming months, backing the central bank's view that the world's third-largest economy is sustaining a moderate recovery.

The data adds to hopes held by some analysts that premier Shinzo Abe's expected decision to delay a scheduled sales tax hike next year will underpin private consumption.

Factory output rose 0.3 per cent in April from the previous month, against a median market forecast for a 1.5 per cent drop, data by the Ministry of Economy, Trade and Industry showed on Tuesday (May 31). It followed a 3.8 per cent rise in March.

The increase came despite earthquakes that hit the southern Japanese prefecture of Kumamoto, and disrupted auto and electronic goods production there.

Manufacturers surveyed by the ministry expect output to rise 2.2 per cent in May and increase 0.3 per cent in June, though some analysts warn of lingering external headwinds such as sluggish emerging market demand.

"We can be relieved somewhat about the effects of Kumamoto earthquakes, but on the other hand, output has been weak due to global economic situations. That part hasn't changed much," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "There are some positive moves (in the global market), but emerging markets are still slowing down and weakness remains in the US production, too."

Japan's economy narrowly averted recession in the first three months of this year and analysts expect only a modest rebound, if any, in the current quarter as sluggish global demand and tame wage growth weigh on exports and consumption.

MrAbe has told ruling party officials that he plans to postpone next year's sales tax hike to avoid dealing a hammer blow to a fragile economic recovery.