TOKYO (REUTERS) - Japanese factory output rose 1.0 per cent in September after two straight months of declines and manufacturers expect further gains in October - suggesting the economy is emerging from the doldrums as the effects of China's slowdown begin to abate.
The turnaround reduces pressure on the Bank of Japan to expand its already massive stimulus programme as early as Friday, although it is expected to slash its rosy economic and price growth forecasts.
Thursday's strong result from the Ministry of Economy, Trade and Industry confounded the median market forecast for a 0.5 per cent drop and followed a 1.2 percent slide in August.
Manufacturers' surveyed by the ministry expect output to rise 4.1 per cent in October and slip 0.3 per cent in November.
"Industrial output is moving sideways," the ministry said, revising up its assessment from last month, when it said production was weakening.
Factory output is among key data the BOJ scrutinises when gauging economic trends. The central bank has said export and output growth remains flat, but it is expected to pick up as global demand recovers.
Many analysts, though, say any rebound in economic activity will be too modest to accelerate inflation toward the BOJ's ambitious 2 per cent target next year.
In a semi-annual outlook report due on Friday, the BOJ is likely to cut its growth and inflation forecasts for the current fiscal year, sources say, but will make only minor reductions to its price estimate for next year.
That may allow the BOJ to justify holding off from expanding stimulus on Friday, though some policymakers worry that soft exports will hurt corporate sentiment and so delay capital investment.