DJ: Japan Indus Output Rises Modest 1.0% In Jan, Below Estimates

TOKYO--Japanese industrial production rose a less-than-expected 1.0% in January from the previous month, as robust auto exports to the U.S. helped prop up weakness in output pervasive throughout the slowly recovering economy.

The rise was below the expectations of economists surveyed by Dow Jones Newswires and the Nikkei who estimated on average that industrial production increased 1.5% from the prior month after adjustment for seasonal factors.

"The two straight months of rebound has just brought the output level back to where it was in August-September, when the recession in Europe began biting Chinese and Japanese exports seriously," a Ministry of Economy, Trade and Industry official briefing reporters said Thursday. "Europe appears to have passed the trough, however."

January's output gain was led by the auto sector, which scored a 6.8% increase on month, even though on year, the level remained down 8.9%. Output in the auto industry was lifted by strong exports to the U.S. as well as surprising resilience of domestic demand, especially for small fuel-efficient vehicles.

"With a weaker yen and higher gasoline prices, demand for fuel-efficient vehicles such as hybrid cars are growing," said Yoshimasa Maruyama, economist at Itochu Corp. in Tokyo.

The rise in auto production has also created demand for basic materials such as steel, resulting in the broader output gain, the government official explained.

In contrast to the strength in the auto and steel industries, output was down 4.1% on month in the machinery segment, reflecting weaker demand for semiconductor-making equipment, and off 0.1% at the electronic components segment due to sluggish demand for smartphone parts in China and digital appliances in Japan.

The electronic components sector has been a major drag on the Japanese economy, as many Japanese manufacturers lost out to Korean and Taiwanese rivals in the global smartphone market.

Companies surveyed as part of the data said they expect a much stronger February, projecting a 5.3% increase, followed by a more modest 0.3% rise in March. The optimism partly reflects a bullish outlook in the auto industry as a weaker yen is expected to boost Japan's competitiveness overseas, the government official said.

"We've gotten clear signs that the economy is already recovering in the first quarter, and it should speed up in the second quarter," said Masamichi Adachi, senior economist at JP Morgan Securities Japan Co.

The ministry upgraded its assessment on the industrial sector, saying declines in industrial production have bottomed out, with upticks seen in some segments of the economy.

Economists say that the strength of the recovery depends on whether other export-led sectors boost output.

While gains in output at the auto and other sectors are expected to support an overall rise in production going forward, Mizuho Research Institute economist Haruka Kazama said she will be paying attention whether electronic device output rebounds or not.

The industrial production figures come a day after the government upgraded its overall assessment of the economy for the second straight month for February. It said the economy was bottoming out as export conditions and private consumption showed signs of improvement, helped by a weakening yen and rising share prices.

The monthly report, released Wednesday, showed that while the economy remained in a "mild deflationary phase," some areas, including industrial production and business confidence, were showing signs of improvement.