UPDATE 2-Japan output up on Asia demand, finmin warns on yen

(For more stories on the Japanese economy, click [ID:nECONJP])

* Nov output rises 1.0 pct, matching forecast

* Manufacturers expect output gains in Dec, Jan -METI

* Core consumer prices fall for 21st straight month

* Japanese policymakers warn against creeping yen rises

(Adds Noda, Kaieda quotes)

By Leika Kihara

TOKYO, Dec 28 (BestGrowthStock) – Japanese factory output rose for
the first time in six months in November and manufacturers
expect to boost production in coming months, suggesting that
firm demand in Asia will help the economy resume a recovery
early next year.

But creeping rises in the yen kept policymakers on alert
for risks to the export-reliant economy, with the finance
minister repeating his warning that the government would take
decisive action to stem any sharp yen rises that could hurt
growth.

Industrial output rose 1.0 percent in November, matching a
median market forecast and marking the first rise in six
months, the Ministry of Economy, Trade and Industry said on
Tuesday.

Manufacturers surveyed by the ministry expect output to
rise 3.4 percent in December and 3.7 percent in January.

The data bodes well for the fragile economy and
underscores the Bank of Japan’s view that growth will pick up
modestly early next year on continued support from exports to
emerging Asia, lessening the chance of an imminent policy
easing by the central bank.

“The headline figure was in line with expectations, but
forecasts for December and January came in quite strong,” said
Yoshiki Shinke, senior economist at Dai-ichi Life Research
Institute.

“Since today’s data shows that the downward risks to the
economy have eased, we now have a smaller chance of the BOJ
easing its policy further as long as there are no wild market
fluctuations caused by some overseas factors.”

Companies increased output of automobile, machinery and
electronic parts mainly for export to Asia and the Middle
East, the data showed.

Automakers also increased output to restock in
anticipation of a pickup in domestic demand next year, a sign
that output may have bottomed out after tumbling when
government subsidies on low-emission cars expired in September.

“We have already got some positive news from Asian
neighbours for October and November. This is confirmation that
Japan is benefiting from the recovery of the Asian economies,”
said Masamichi Adachi, senior economist at JPMorgan Securities
Japan.

Still, the ministry maintained its assessment that
industrial output was moving on a weak note, stressing that
production has recovered only moderately after steep declines
in the past few months.

Financial markets did not react much to the data with
yen moves swayed more by broad selling pressure on the
dollar.

NODA WARNS ON YEN
Japan’s economy is expected to contract slightly
in the final quarter of this year. Analysts expect growth to
pick up early next year but only modestly due to weak consumer
spending.

Adding the economy’s woes, the yen rose to a
three-week high against the dollar on Tuesday, approaching
levels seen before Japanese authorities intervened in the
currency market in September for the first time in six and a
half years.
Noda blamed the recent yen gains mainly on thin
trading volume but warned that he would closely watch market
moves toward the year-end and into the new year.
“Our stance remains unchanged that we will take
decisive steps when rapid moves occur,” he told a news
conference.
Economics Minister Banri Kaieda also told reporters
on Tuesday that the government wants to tackle sharp yen rises
by cooperating closely with the Bank of Japan, although he did
not elaborate on what sort of measures he had in mind.
Underscoring the fragile state of the economy,
household spending fell 0.4 percent in November from a year
earlier and the jobless rate was steady at 5.1 percent.

Core consumer prices marked their 21st straight month of
annual declines, a sign the country remains mired in deflation
due to weak domestic demand and keeping pressure on the BOJ to
maintain its ultra-easy monetary policy.

The BOJ eased policy in October by pledging to keep
interest rates effectively at zero until the end of deflation
was in sight and by crafting a 5 trillion yen ($60 billion)
pool of funds to buy assets ranging from government bonds to
corporate debt, including trust funds investing in stocks and
property.

BOJ policymakers have repeatedly said that increasing the
size of the fund would be a clear option if the looming
economic slowdown proves worse than expected.

($1=82.78 Yen)

(Additional reporting by Rie Ishiguro, Tetsushi Kajimoto
and Kaori Kaneko; Editing by Edmund Klamann & Kazunori Takada)

UPDATE 2-Japan output up on Asia demand, finmin warns on yen