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Japan's Industrial Output Rises in November

Reuters
Wednesday, 27 Dec 2006 | 10:43 PM ET

Japanese industrial output rose less than expected in November, data showed Thursday, giving economists little help in gauging whether the Bank of Japan will raise interest rates next month.

Industrial production rose 0.7% in November from the previous month, the Ministry of Economy, Trade and Industry (METI) said, below a market consensus forecast for a 1.1% rise. "With regard to monetary policy, since the headline figure was a bit weak I don't think it warrants a very active stance toward a January rate rise. We need to see other data," said Noriaki Haseyama, an economist at Dai-Ichi Life Research Institute.

Other economists echoed Haseyama, saying the data showed the relative strength of production but that it was not enough to alter expectations regarding the timing of the next rate move.

"Production is firm, but overall the data is neutral for an interest rate hike by the Bank of Japan, considering the pace of rise in inventories," said Koji Fukaya, chief economist at Bank of Tokyo-Mitsubishi UFJ. "I still think it's 50-50 on whether the BOJ will raise interest rates in
January."

After the data, the yen edged up on caution that the central bank might raise interest rates next month.

Thursday's data showed manufacturers' output -- the core component of production -- is expected to rise 0.7% in December but decline 0.8% in January.

Overall, inventories rose 1.4% in November. But in one positive sign, the data showed that a recent build-up of stocks in the high-tech sector, which had been a source of concern for the central bank, eased in November. "Inventory in electronic parts and devices declined while production rose.

So for now, the possibility of inventory piling up and curbing production as feared has not become a reality," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Inventories in the electronic parts and devices sector fell 3.4% in November, the first month-on-month fall in seven months, while shipments rose 4.2%.

Big swings in semiconductor and LCD parts output have often determined overall production trends.

This sector's output is seen falling 4.8 percent in December, but rising 6.8% in January.

Although financial markets have long expected the BOJ to raise rates by early next year, mixed economic data in the last few months has cast doubt on that scenario.

In particular, household consumption has been disappointing, despite an improving labor market. BOJ Governor Toshihiko Fukui acknowledged this month that consumption and price growth have been somewhat weak, raising speculation that he may wait for them to pick up before raising rates.

But Fukui has also stressed that future rate hikes would depend on economic and price conditions. The Bank of Japan has said it will gradually notch up rates since it raised
them in July to 0.25% from zero, its first increase in six years.

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