Solid rebound in Japan factory output eases economic concerns

TOKYO (Reuters) - Japan's industrial output rose in September at the fastest pace in eight months in a tentative sign of recovery in factory activity, offering some relief for Prime Minister Shinzo Abe as he moves closer to making a decision on a second sales tax hike.

The 2.7 per cent rise in factory output topped economists'median estimate of a 2.2 per cent increase in a Reuters poll, the Ministry of Economy, Trade and Industry data showed. That followed a 1.9 perc ent drop in August.

The upbeat data follows a run of weak economic reports after a sales tax hike in April drove the world's third-biggest economy into its deepest quarterly slump since the 2009 global financial crisis in the second quarter, casting doubt about a planned second tax increase in October 2015.

Some analysts think the third quarter growth figures would be robust enough to allow Abe to proceed with the tax hike - a key plank in Tokyo's strategy to curb Japan's mammoth debt load.

The fragile economic recovery has raised speculation about additional stimulus by the government and central bank.

Still, the Bank of Japan is in no mood to ease policy again at its policy review on Friday when it is expected to slash its growth projections but stick to its rosy view that the economy is on track to meet a 2 per cent inflation target sometime next year.

On Tuesday, policy makers received more welcome news on consumption when government data showed retail sales rose for the third straight month in September.

The rare bright spots, however, fail to mask the painfully slow economic recovery.

The ministry data showed output rose due to increase production of cars, flat panel displays and solar panels. Factory activity has been languishing since April's tax hike to 8 per cent from 5 per cent, which dampened demand for cars and housing construction, leaving companies saddled with a pile of inventories of unsold goods.

Indeed, the outlook was mixed as manufacturers surveyed by the ministry said they expected output to fall 0.1 per cent in October but increase 1.0 per cent in November, the data showed.

Other key indicators for September due this week are also likely to show falling household spending, slowing consumer inflation and a rising jobless rate.