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Japanese economy buoyed by production figures

Japan's industrial production rose in November for the first time in six months, easing worries that the country's recovery might veer off track.

The country's Ministry of Economy, Trade and Industry said that factory output climbed 1% from the previous month due to stronger demand for transport equipment and electronic parts.

The result suggests that overseas demand is starting to climb again, sparking the country's vital manufacturing sector. Indeed, data last week showed that export growth in November accelerated for the first time in nine months, and this latest result beat Kyodo News agency's average market forecast for a 0.9% climb.

The increase follows a 2 % drop in October when the domestic car sector took a major hit from the expiration of government subsidies for eco-car purchases.

Tokyo has been struggling to keep its fragile economic recovery alive, battling deflation, signs of slowing global growth and a strong yen, which can hurt exports. Some economists are even predicting that Japan's gross domestic product will shrink this quarter.

But Tuesday's factory output numbers offer "hard evidence" that Japan's economy will resume recovery, said Masamichi Adachi, senior economist at JPMorgan Securities Japan.

The ministry's survey points to stronger growth ahead. It expects industrial production to rise 3.4% in December and 3.7% in January.

"These projections were very strong compared to their own month-ago outlook and our forecast," Mr Adachi said in a note to clients.

Other data released today show, however, conditions remain tough for workers and families. The country's seasonally adjusted unemployment rate held steady at 5.1% - high by Japanese historical standards. Household spending fell a real 0.4% from a year earlier, according to the Ministry of Internal Affairs and Communications.

Companies remain cautious about hiring, and economists say they do not expect the labour market to improve dramatically in the coming months.

"With the consumer electronics eco-point programme and other government stimulus coming to an end, we see a strong likelihood the business cycle will remain unstable through mid-2011, chiefly in the area of domestic demand," said Goldman Sachs economist Chiwoong Lee in a report.

Separately, the government said prices in November fell for the 21st straight month as deflation kept its grip on the economy. The key consumer price index, which excludes volatile fresh food prices, fell 0.5% from a year earlier.

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