Japan's December factory output rises 2.5% on-month

Japan on Thursday said factory output rose in December, marking a rare bright spot for the world's third-largest economy as the new conservative government vows to reverse the nation's fortunes.

The 2.5 percent expansion from the previous month was largely thanks to brisk production of cars and semiconductors, as vehicle demand in the key US market picks up, helping Japan's automakers.

"Industrial production shows signs of having bottomed out," the economy ministry said in a statement.

Meanwhile, a survey of manufacturers released with the data found that producers expected another output increase for January and February of 2.6 percent and 2.3 percent, respectively.

"The December figure shows Japan's production activity has hit bottom and is now on course to a gradual recovery," said Yusuke Shimoda, an economist at Tokyo-based Japan Research Institute.

"On top of a recovery in the global economy, economic measures taken by the new government are expected to push output up further. Among the potential negative factors are uncertainties about the Chinese economy."

And the rosy monthly figures still fell short of a 4.0 percent rise expected by the market, while factory output was down 1.9 percent in the October-December quarter from the previous three months.

A week ago, Japan said it logged a record trade deficit for 2012 as exports were hit by a bitter diplomatic spat with its biggest market China and plunging demand in debt-wracked Europe.

Japan's economy contracted in the third quarter after a slip in the previous three months, meeting the technical definition of a recession.

The figures underscored the size of the task ahead for the new government under hawkish Prime Minister Shinzo Abe, which has heaped pressure on the Bank of Japan for aggressive easing measures to boost the deflation-plagued economy.

Tokyo's trade deficit with Beijing doubled to a record 3.52 trillion yen last year, as a feud over a chain of islands in the East China Sea spurred anti-Japan protests across China and a consumer boycott of Japanese goods.

The long-running territorial dispute flared in September after Tokyo nationalised some of the Senkakus, which Beijing refers to as the Diaoyu islands.

The archipelago is believed to harbour vast mineral reserves beneath its seabed and has proved to be a sore spot between the major trading partners.

Earlier this month, Japan's under-pressure central bank adopted a two percent inflation target to beat the deflation that has haunted the economy for years and also set out plans for indefinite monetary easing.

Markets have cheered Abe's strong stand. The Nikkei 225 stock index has soared in the past couple of months, while the yen has tumbled.

That is good news for Japan's exporters, who have complained about the unit's increasing strength since it hit a record around the 75-level against the dollar in late 2011. A high yen makes Japanese products less competitive overseas and shrinks the value of repatriated foreign income.

The dollar bought 91.03 yen in Tokyo forex trade Thursday.