Japan industrial output up, as recovery takes hold

TOKYO (AP) Japan's industrial output rose 1.5 percent in September from the previous month, as stronger production of vehicles and electronic components added to signs the recovery in the world's third-largest economy is gaining traction.

The Ministry of Economy, Trade and Industry said Wednesday a survey found manufacturers expect output to rise 4.7 percent in October but to decline in November. The increase in September compares with a 0.9 percent decline in output in August.

Increased shipments by refineries and of telecoms equipment also contributed to September's rise.

The economy grew 3.8 percent in April to June, reinforcing confidence in a rebound in growth and paving the way for Prime Minister Shinzo Abe to approve a sales tax hike next April that is expected to hit consumer demand and again drag growth lower.

The data for September were generally encouraging. Retail sales climbed 3.1 percent as household spending rebounded in September, rising 3.7 percent from the year before, while average incomes rose 2.3 percent.

The biggest increases in outlays were for public transport, at 10 percent, and school fees, which jumped a whopping 55 percent. Purchases of bicycles doubled while vehicle purchases fell 15 percent.

The unemployment rate also fell slightly in September, to 4.0 percent from 4.1 percent the month before. However the ratio of jobs available to job seekers remained flat at 95 per 100 job seekers.

Japan's exports have so far failed to recover as robustly as hoped. The trade deficit ballooned to 932 billion yen ($9.5 billion) in September, a fresh record for the month, as costs for imports of food and other necessities outstripped growth in exports.

A recovery in consumer demand is thus crucial for Abe's economic strategy, which has focused on aggressive monetary easing aimed at spurring inflation, and strong government spending. Reforms meant to shore up Japan's waning industrial competitiveness have yet to be enacted or spelled out in detail.

So far, there is scant sign that Japanese companies are making significant commitments of new investment at home, despite the extremely low cost of capital given the central bank's commitment to keeping interest rates near zero.

But while business sentiment has markedly improved, excess capacity has kept most from spending more on plants and equipment in Japan. Instead, most are opting to shift factories overseas or to step up acquisitions of foreign companies.

Wage increases have likewise been scant, raising the prospect that Japanese consumers will face higher prices without a commensurate increase in their purchasing power.