BUSINESS
09/30/2011 04:54 EDT | Updated 11/29/2011 05:12 EST

Japan's factory production climbs in August but uncertainty ahead

TOKYO - Japan's factory production rose for the fifth straight month in August, almost restoring it to levels recorded before the March earthquake and tsunami disasters.

The improvement, however, is clouded by uncertainty ahead as Japanese manufacturers contend with a persistently strong yen and a fragile global economy.

Industrial output climbed 0.8 per cent from the previous month, according to a Ministry of Economy, Trade and Industry report Friday. Sectors driving gains included transport equipment, electronic parts, and iron and steel.

The ministry said industrial production has almost fully recovered from the March disasters. But August's result undershot the government's earlier estimates, reflecting the new pressures on exports.

"It would be necessary to keep watch on future developments," the ministry said.

Exports are a key growth driver for the world's No. 3 economy, and any slowdown in overseas demand could thwart progress made since the disaster. The tsunami wiped out much of Japan's northeast coast, damaging factories and disrupting critical supplies for key Japanese industries such as autos and electronics.

Supply issues have been mostly resolved, and production is back to 96 per cent of its pre-quake level, said Goldman Sachs economist Chiwoong Lee.

"Now that production is largely free of supply constraints, we expect it to directly reflect external demand conditions and start to weaken," Lee said in a research note.

Shipments rose 0.3 per cent in August, while inventories expanded 2.1 per cent.

The ministry expects industrial production to fall 2.5 per cent in September before rising 3.8 per cent in October.

Separately, the government says Japan's unemployment rate fell to 4.3 per cent in August.

The result marked the first improvement in three months, but the figure may not reflect the true health of the job market, the Ministry of Internal Affairs and Communications said.

The report does not include the three prefectures hardest hit by the tsunami — Iwate, Miyagi and Fukushima. It also does not account for unemployed workers who have simply given up seeking jobs.

The government also released data on consumer prices and household spending.

The August core consumer prices index, which excludes volatile fresh foods, rose 0.2 per cent from a year earlier on higher fuel costs. Preliminary CPI for the Tokyo area — considered an indicator of broader price trends for the country — fell 0.1 per cent in September.

Meanwhile, average monthly household spending tumbled a real 4.1 per cent from a year earlier as family incomes fell. The figure is a key barometer of private consumption, which accounts for more than half of Japan's gross domestic product.

Average monthly household income in August fell 1.7 per cent from last year to 463,760 yen ($6,045), the ministry said.