Japanese industrial output rebounds

Japan's industrial output rose 3.1 percent in December, official data showed on Monday, suggesting the industrial sector took off on a strong note in the new year.

Industrial production rose by 3.1 percent month-on-month in December, which was much as expected, while firms replying to the METI survey said they expected output to jump a further 5.7 percent in January, before dropping back by 1.2 percent in February.

However, Capital Economics analyst Julian Jessop pointed out that inventories also rose for the first time in three months, by 1.4 percent, suggesting that roughly half of the increase in output has gone into stocks. ... much of the new output is simply being added to inventories, and the rebound is still export-led. The pick-up will therefore not be sustained if, as we expect, the global recovery disappoints later this year, Jessop wrote in a note.

Data showed on Monday the manufacturing PMI for January rebounded from 48.3 to 51.4, the highest since July. However, Jessop pointed out that at 51.4, Japan's manufacturing PMI is still well below comparable surveys overseas.

Overall, it would have been very odd if Japanese firms had failed to benefit at all from the recent acceleration in activity in key export markets like the US. But the economy as a whole will need more than this to sustain a decent recovery, said Jessop.