Japan October factory output steady, November seen solid in sign of tentative recovery

By Minami Funakoshi

TOKYO (Reuters) - Japan's industrial output rose in October from the previous month and manufacturers say production likely bounced sharply this month, preliminary government data showed on Wednesday, in a sign of a tentative pickup in factory activity.

Industrial output rose 0.1 percent in October, increasing for the third consecutive month. The result slightly beat the median forecast of a 0.1 percent fall in a Reuters poll of economists, and followed a 0.6 percent increase in September.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 4.5 percent in November and decrease 0.6 percent in December.

A METI official said manufacturers' outlook for November is probably overly optimistic, adding the government expects output to rise 1.7 percent this month. On the other hand, outlook for December may not be as weak as manufacturers expect, the official added.

Recovery in factory output is a welcome sign for policymakers, who have struggled to generate virtuous cycle of growth in consumption and production to lift an economy mired in nearly two decades of deflation and stagnation.

"Industrial output is picking up as a trend," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

"Output will continue to recover," Tokuda said, adding that worries about downward risks have moderated recently.

The ministry maintained its assessment on industrial output, saying a gradual pick-up can be seen in production.

In October, production gains in semiconductors, smartphone parts and large liquid crystal displays were supported by domestic and Chinese demand, said the METI official.

Overall inventories fell 2.1 percent versus a 0.5 percent decrease in September.

Japan's economy expanded for a third straight quarter in July-September as exports recovered, but domestic activity remained weak, highlighting the potential fragility in the export-reliant country's recovery.

Bank of Japan Governor Haruhiko Kuroda has maintained his optimistic view of the economy, saying it was on track for a moderate expansion as exports and output rebounded thanks to an expected improvement in the global economy.

But he has also acknowledged that private consumption was not up to the mark and making some companies hesitant to raise the prices of their goods and services - potentially delaying achievement of the central bank's 2 percent inflation target.

Separate data showed on Tuesday that Japan's unemployment rate held steady in October as the availability of jobs improved and household spending fell at a slower pace, hinting that a robust labour market is lending some support to domestic demand.

(Reporting by Minami Funakoshi; Editing by Chang-Ran Kim & Shri Navaratnam)