Japan's unemployment, factory output worsen

Japan's economic conditions continued to worsen as unemployment rate rose in October and industrial production fell for the fifth consecutive month.

Unemployment rose to 5.1 percent from 5.0 percent in October, the first rise since June this year.

The unemployment rate will edge down again in the coming months, Julian Jessop, an economist at Capital Economics, said in a note. However, he expects it to remain close to 5 percent, which is rather high by Japanese standards.

Industrial production dropped 1.8 percent during the month, as the effect of the stimulus waned. While the drop was less than the expected 3.3 percent, concerns still linger about the strength in the Japanese economic recovery.

A stronger yen and the global recession have hit Japan's exports, one of the main contributors to economic growth.

A strong yen results in lower profits through foreign exchange for companies operating overseas. It also makes imports cheaper - a major problem for a country that has been battling deflation for the better part of a decade.

Japan has been battling deflation since 1998. New 'structural reform' policies undertaken by the government resulted in deflation on numerous occasions till 2004. Investors hoped the recovery since would be sustainable. But Japan was hit by the global economic crisis in 2008 and has been struggling to recover since.

However, Jessop believes that the 1.8 percent drop in industrial production is good news as it was only half as large as anticipated following the expiry of government subsidies for car purchases.

Firms replying to the METI survey expect to increase output again by 1.4 percent in November and 1.5 percent in December. While this would leave output down around 1.7 percent sequentially in the fourth quarter, it would be no worse than the decline in the third quarter, he added.

Output would also end the quarter on an uptrend, which would bode well for the export data too, Jessop said.

October saw a 0.2 percent rise in the consumer price index from last year, mainly due to food prices and a hike in tobacco taxes that caused cigarette prices to jump. However, most economists do not believe the rise to be sustainable.

The Japanese government passed a new stimulus plan earlier this month to boost growth. Japan's economy grew 3.9 percent in the third quarter, mainly due to the stimulus and saw no impact from exports.