Japan factory output seen up, core inflation near five-year highs

Fri Feb 21, 2014 3:39am EST
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By Tetsushi Kajimoto

TOKYO (Reuters) - Growth in Japan's factory output likely accelerated in January and core inflation hovered near five-year highs, a Reuters poll showed, underscoring the ongoing economic recovery despite fears that momentum may soon start to fade.

Retail sales probably increased while job conditions held firm, in a sign that an improving labor market and firm demand are driving private consumption, which accounts for 60 percent of the economy.

The slew of indicators, all due next Friday, come on the heels of data earlier this week that showed weaker-than-expected fourth quarter growth due to disappointing exports, capital spending and private consumption.

Weak readings could heighten market expectations that further stimulus will need to be rolled out by the government and the Bank of Japan, which remain upbeat on the economy despite worries about the potential blow from a planned sales tax hike in April and weak demand from emerging economies.

"The GDP data was disappointing but I expect positive readings from January data due to last-minute demand (before the tax increase kicks in)," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.

"Still, risks are skewed to downside due mainly to weak external demand. If markets remain jittery, the BOJ could ease policy further preemptively in April when private consumption drops and signs of economic deterioration emerge."

A separate Reuters poll this week showed the BOJ is expected to ease policy further by this summer to help boost the economy as the effects from Prime Minister Shinzo Abe's stimulus strategy begin to wane.

Japan's industrial output, which closely correlates with economic cycle, rose 3.0 percent in January from the previous month, following a 0.9 percent gain in December, according to the median estimate of 29 economists in a Reuters poll.   Continued...

A man walks inside a factory at Keihin industrial zone in Kawasaki, south of Tokyo June 28, 2013. REUTERS/Yuya Shino