Japan data shows Abenomics still struggling

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Japan's industrial output posted a surprise drop in November, while inflation continued to slow, offering fresh signs that efforts to kickstart the country's stalled economy aren't proceeding smoothly.

Manufacturing fell 0.6 percent on-month in November, compared with a Reuters poll forecasting a 0.8 percent rise and October's 0.4 percent rise.

Meanwhile, Japan's core inflation, which includes energy but not fresh food, rose 2.7 percent on year in November, in line with expectations from a Reuters poll, but marked the fourth straight month of declines.

Once the effects of an April sales tax hike are stripped out, core inflation was 0.7 percent in the month, slowing from October's 0.9 percent.

""It is likely to be a period of time before the BOJ can declare mission accomplished in lifting inflation expectations," Mizuho said in a note Friday.

Japan's economic data have been closely watched for cues on whether Prime Minister Shinzo Abe's plan to kickstart the long moribund economy, dubbed Abenomics, has seen any success. Declining inflation has raised skepticism over the Bank of Japan's (BOJ) ability to achieve its inflation target of 2 percent.

Japan's economy is in a technical recession after gross domestic product (GDP) shrank an annualized 1.6 percent in the July-September quarter, defying expectations for growth.

Read MoreAbenomics gets a mixed report card

Not all of the data were gloomy. A government survey of manufacturers showed they expect December and January output to rise 3.2 percent and 5.7 percent respectively. And much of the decline in inflation can be laid at the door of declining energy prices, which could bring other economic benefits as it leaves more cash in consumers' pocketbooks.

Among other data, Japan's November household spending fell 2.5 percent on-year in November, compared with expectations from a Reuters poll for a 3.8 percent decline. Household spending in November rose 0.4 percent from a month earlier, better than the 0.2 percent rise forecast in the poll.

"Industrial production and retail sales showed a tinge of strength, suggesting that exports and domestic sentiment are improving," Mizuho said.

Retail sales rose 0.4 percent on-year in November, although that was lower than the 1.1 percent growth forecast in a Reuters poll.

There were also some positive signs in Japan's employment data. The jobless rate remained steady at 3.5 percent in November, in line with forecasts, while the jobs-to-applicant ratio rose to 1.12 from October's 1.10, the highest since 1992.

Spurring companies to raise wages has been a key plank of getting Abenomics to work, with expectations that as it becomes more difficult to fill positions, incomes will rise and increase inflation and economic activity.