Japan’s industrial production increased for the first time in six months in November, signaling the nation’s export-led recovery will regain traction. Factory output climbed 1 percent from October, when it dropped 2 percent, the Trade Ministry said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 0.9 percent gain. Today’s report eases concern that companies will further scale back production as government stimulus steps fade. Exports withstood a yen near 15-year highs to grow faster for the first time in nine months in November, supported by demand from China, Japanese government data showed last week. Honda Motor Co., Japan’s second-largest automaker, is among companies increasing output to meet demand. “It’s nice to end the year with some good economic news,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Japan’s still in a soft patch but today’s report signals there will be better times ahead, driven by the global recovery.” The yen traded at 82.71 per dollar at 10:10 a.m. in Tokyo from 82.78 before the report was published. The Nikkei 225 Stock Average fell 0.3 percent. Output of transport equipment advanced for the first time since March and production of electronic parts and devices gained for the first time since May, today’s report showed. Overall production in October fell by the most since February 2009 as the government’s subsidy program to buy fuel-efficient cars ended in September, prompting automakers to cut output. ‘Impressive’ “Production was impressive and shows the global recovery is firmly in place,” said Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo. “Japan’s recovery is gradually improving after a pause.” Shipments of flat-panel televisions rose in November as shoppers took advantage of stimulus programs to purchase consumer electronics, today’s report showed. The incentives were reduced in December. A separate report today showed that retail sales rose 1.3 percent in November, beating economists’ forecasts for a 0.4 percent advance. Core consumer prices excluding fresh food slid 0.5 percent and the unemployment rate held steady at 5.1 percent. Manufacturers said they plan to increase output 3.4 percent in December and 3.7 percent in January, a government survey included in today’s output report showed. “An increase in the output forecasts will likely strengthen optimism that production will pick up earlier than expected,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. Quarterly Drop A December output figure in line with the forecasts will result in production sliding about 1.6 percent this quarter, the second consecutive drop, the government said. Komatsu Ltd., Asia’s largest maker of construction equipment, said this month the company is selling more excavators in China than it expected this quarter as the government aims to develop its interior regions. Honda said Chinese output rose 2.7 percent from a year earlier in November. China’s industrial output gained more than economists’ forecast in November from a year earlier. In the U.S., the economy expanded at a 2.6 percent annual rate in the third quarter, marking a pickup in growth. No Double-Dip “We expect production to remain sluggish through the January-March period but do not anticipate a double dip,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. If China maintains robust growth and the U.S. rebounds, “we believe Japanese exports will hold their ground in 2011, helping to support production.” Japan’s government forecast on Dec. 22 that economic growth will slow to 1.5 percent in the year starting April 1, from a projected 3.1 percent this year. Prime Minister Naoto Kan’s Cabinet last week approved a record 92.4 trillion yen budget plan for the next fiscal year that aims to spur private demand. Opposition parties, which control the Upper House of parliament, will likely try to block the passage of bills related to the budget, complicating Kan’s efforts to stimulate the economy. One risk for Japanese exporters is that China may continue to raise interest rates, causing a slowdown in their largest overseas market, said Naoki Tsuchiyama, a market economist at Mizuho Securities Co. in Tokyo. China increased interest rates on Dec. 25 to counter inflation. “Our main scenario is that the global economy will be in a cyclical recovery next year,” Tsuchiyama said. “Still, the downside risks remain strong as the emerging nations may raise rates intermittently,” which could weigh on Japan’s exports. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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