Japan boosts output but unemployment up

A sharp rise in Japan's industrial output is boosting hopes of a recovery in the world's second-biggest economy even as government figures yesterday showed unemployment had reached a five-year high.

While many companies are starting to bet on an economic upswing, Japan's worst post-war recession is still impacting the economy through job losses and falling prices, the data show.

Factory output in April rose 5.2 per cent from March, the fastest monthly jump in more than half a century and far above market expectations for an increase of around 3.3 per cent, the trade ministry said.

Industrial production was still down 31.2 per cent year-on-year as the global slump continued to hit the export-driven economy, but the numbers showed production of electronic parts and chemicals was picking up.

The second monthly increase in a row suggested companies have run down stockpiles and will keep ramping up production. Manufacturers forecast output would rise 8.8 per cent in May and 2.7 per cent in June.

"This part of the data is very positive," said Shinko Research Institute economist Norio Miyagawa, saying the data indicates that "output will likely remain firm this year."

Naoki Murakami, Monex Securities' chief economist, said in a report that "it is possible that the production index will bounce back to late-2008 levels by the summer in a nearly V-shaped recovery."

The figures raised expectations Japan's economy could start to grow again in the second quarter after shrinking four per cent quarter on quarter in the three months to end-March.

Hideyuki Araki, economist at Resona Research Institute, said: "Once factory production picks up, related services such as distribution will pick up.

"This could lead to a better labour market."

But Araki also sounded a note of caution, stressing that "unemployment kept worsening because it's a lagging economic indicator. There are concerns that continued worsening could dampen consumer spending."

New figures showed that unemployment rose to five per cent in April from 4.8 per cent in March, the highest rate since November 2003.

"I'm quite disappointed that the job situation has deteriorated sharply," said Finance Minister Kaoru Yosano. "But we have to accept it as reality and we need to monitor price and job conditions very carefully."

Separate data showed there were only 46 job offers for every 100 job seekers, matching the worst ever figure in June 1999.

Average monthly household spending dropped 1.3 per cent in real terms in April from a year earlier, falling for the 14th month in a row. The trend dampens hopes for a quick recovery, analysts say, because private consumption makes up nearly 60 per cent of Japan's economy, and because falling demand drives down prices and triggers deflation.