March 30, 2012 / 1:11 AM / 8 years ago

Japan output logs surprise drop, but recovery seen intact

TOKYO (Reuters) - Japan’s industrial production unexpectedly fell in February for the first time in three months in a sign overseas demand is slow to recover but analysts still predict a gradual pickup in factory output thanks to an improving global economy.

Cars covered with snow are seen at an industrial port before they are loaded to a cargo ship in Yokohama, south of Tokyo February 29, 2012. REUTERS/Kim Kyung-Hoon

The 1.2 percent drop in factory output came against a median forecast for a 1.3 percent rise and followed a 1.9 percent increase in January, according to the trade ministry. JPIP1=ECI

But companies had optimistic forecasts for production in coming months in a sign that an improving U.S. economy and easing tensions surrounding Europe’s sovereign debt crisis will encourage Japanese firms to produce more goods, supporting the domestic economy.

“February’s fall was unexpected given the recovery in U.S.-bound exports, but as manufacturers’ forecasts for the coming months are strong the gradual recovery in output is likely to continue,” said Yuichi Kodama, economist at Meiji Yasuda Life Insurance.

“The improving global economy, mending of supply chains damaged by Thai floods and subsidies for energy efficient cars are likely to support Japanese production in the coming months. The yen’s retreat is also likely to cause companies to revise their production plans upward.”

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Industrial production: link.reuters.com/xyt65s

Consumer prices: link.reuters.com/vef36s

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Manufacturers surveyed by the ministry expect output to rise 2.6 percent in March and gain 0.7 percent in April, the data showed.

A separate survey showed Japanese manufacturing activity improved in March. The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 51.1 from 50.5 in February. JPRPMI=ECI

The core consumer price index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, rose 0.1 percent in February from a year earlier, beating the median estimate for a 0.1 percent annual decline, another data release showed. JPCPI=ECI

The seasonally adjusted unemployment rate fell to 4.5 percent in February from 4.6 percent in January, compared with economists’ median forecast of 4.6 percent. JPUNR=ECI

Japan recorded an unexpected trade surplus in February, its first surplus in five months, as exports to the United States jumped in a sign that external demand is recovering.

Japan’s economy is expected to grow 1.9 percent in the fiscal year that starts in April with exports seen picking up by the middle of this year, helped by signs that the U.S. economy is regaining strength, a Reuters poll has shown. <ECILT/JP>

Reconstruction from last year’s huge earthquake and tsunami will also give Japan’s gross domestic product a boost this year, economists say.

The Bank of Japan surprised markets last month by easing monetary policy and setting a 1 percent inflation goal, suggesting a more vigorous efforts to beat deflation, which has been plaguing Japan for more than a decade.

Additional writing by Rie Ishiguro; Editing by Ed Davies

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