Japanese factory output exceeds expectations

Official figures published yesterday revealed Japan’s factory output rose for the ninth consecutive month in November.

Factory output was up by 2.6% in the month and was slightly above analysts expectations of a 2.5% rise.

The rise extended the longest unbroken growth since a 12-month rise to March 1997 and was attributed to growing overseas demand for Japanese goods.

However, there was a further fall in consumer spending with retail sales 1% lower in November compared with a year ago - the 15th consecutively monthly fall.

Rising unemployment has made consumers wary and, as a result, continue to cut back on spending.

The world’s no.2 economy exited recession in the second quarter of this year but there have been fears that the return of deflation could stall growth within the economy.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.

Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

Furthermore, the yen’s recent surge to a 14-year high against the US dollar poses a threat to the recovery by making Japanese exports more expensive in the US.

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