Japan factory output rises fastest in a year, outlook uncertain

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TOKYO Japan's industrial output rose the most in a year in January, tentatively signaling a pick up in factory activity, but the outlook remains far from assured given global market jitters and weakening demand both at home and abroad.

The 3.7 percent month-on-month gain compared with economists' median estimate of a 3.3 percent gain in a Reuters poll, and followed a 1.7 percent drop in December, trade ministry data showed.

It was the fastest gain since January 2015, led by output of cars, electronics parts and general-purpose machinery.

But retail sales fell 0.1 percent in January from a year ago, following a contraction in fourth quarter gross domestic product, underscoring weakness in private consumption which accounts for about 60 percent of the economy.

The mixed indicators followed trade data out this month that showed Japan's annual exports in January fell the most since 2009 as demand from China weakened. Policymakers will scrutinize coming data, including January household spending due on Tuesday, for more clues on health of the economy.

Weak data could pile pressure on the government and the Bank of Japan to offer fresh stimulus to prop up the economy.

"Output is probably weaker than the headline figure showed. February output is expected to decline to an extent that would offset January's gain and a bounce is seen weak in March," said a trade ministry official.

Manufacturers surveyed by the ministry expect output to fall 5.2 percent in February and grow 3.1 percent in March, the data showed.

The ministry maintained its assessment of industrial output, saying it was "see-sawing".

Japan's economy contracted by an annualized 1.4 percent in October-December, more than expected, as private consumption and exports slumped.

Analysts say any recovery in the current quarter will be modest because of weak demand both at home and abroad.

Persistent market turbulence has boosted the yen and weakened Japanese equities despite the BOJ's decision last month to adopt negative interest rates, keeping alive speculation that the bank will ease policy again in coming months.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)

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