Japan's Industrial Production Up Sharply

Nov. 29, 2006
Car and semiconductor manufacturers pushed output up 1.6%.

Japan's industrial output unexpectedly shot up in October as car and semiconductor manufacturers ramped up production, the government said Nov. 29. Output grew 1.6% from September, much better than market forecasts for a 0.4% fall and an earlier government projection of a 0.2% drop, data from the Ministry of Economy, Trade and Industry showed.

The rise in output was attributed to stronger general machinery -- namely semiconductors and flat-panel processing equipment -- as well as passenger cars and other electronic parts and devices.

The gains erased a sharp decline in September which had spooked the markets, with the index rising 7.4% year-on-year. Nov. 29's data "offset anxiety among investors on the outlook of the Japanese economy which was caused by weak figures during the summer," NLI Research Institute senior economist Yasuhide Yajima said. "If consumer prices due this week and a U.S. manufacturing index on December 1 turn out to be better than expected, I think it is plausible that the Bank of Japan will raise its key rate in December," Yajima said.

The market is braced for the Bank of Japan to raise its benchmark borrowing rate to 0.50% either next month or in early 2007, the first rate hike since July when it ended its unorthodox five-year policy of zero interest. Many government officials believe the Bank of Japan should be cautious on raising interest rates further given the risk of denting a still fragile economic recovery.

Copyright Agence France-Presse, 2006

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