Japan's October Industrial Output Rises, Outlook Patchy

Japan's industrial production rose in October from September, signaling firm corporate activity and steady exports, but the data did little to alter views that the Bank of Japan will not raise interest rates until next year.

Jitters about a further U.S. economic slowdown kept investors wary of more market turmoil ensuing from subprime woes.

Output rose 1.6 percent in October from September, government data showed on Thursday, compared with a consensus market forecast of a 1.7 percent increase.

"The data is in line with the Bank of Japan's view that the domestic economy is firm, but that alone won't lead to the next rate hike," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.

"The BOJ won't move until it becomes clear that subprime problems are settling and the U.S. economy will achieve a soft landing," he said.

Manufacturers' output, the core component of production, is expected to fall 1.7 percent in November before increasing 3.2 percent in December, the data from the Ministry of Economy, Trade and Industry showed.

Financial markets did not react much to the data.

The ministry maintained its assessment on output for the third straight month, saying it is on a moderate rising trend.

Industrial production has been recovering, albeit gradually, after weakening in the first three months of this year largely on inventory adjustment in the high-tech sector.

Strong shipments to Asia and Europe have offset slowing demand for Japanese goods in the United States, where adjustments in the housing sector have weighed on personal consumption.

But there have been fears that the slowdown in the U.S. economy, Japan's major export destination, could gradually hurt global growth.

The economy grew 0.6 percent in July-September, supported by firm exports and capital spending. That followed a 0.4 percent fall in April-June, meaning that Japan avoided a recession -- often defined as two straight quarters of contraction.

The BOJ has sat tight on its key overnight call rate target, currently at 0.5 percent, since February, as jitters in global financial markets have made it difficult to raise interest rates.

But the central bank has said it will need to raise low rates back to normal levels to prevent the economy from overheating.