Japan's factory output rises in May, prices flat

Japanese factories put in a surprisingly strong performance in May, official data showed on Friday, the latest good news for the world's third-largest economy as Tokyo works to breathe new life into the perpetual laggard. The figures, which showed industrial production jumped 2.0 percent in May from a month earlier, come as Japan's trade picture improves with exports rising as business with the United States and China soars. Markets had been expecting a monthly factory output rise around 0.2 percent. "Broadly speaking I believe this indicates a gradual recovery. But this month's gains could be attributed to production of large machinery like turbines and boilers. So it could represent mainly temporary factors," said Yasuo Yamamoto, senior economist, Mizuho Research Institute. And separate figures also published Friday painted a more mixed picture of an economy still struggling to reverse years of growth-crimping deflation. Consumer prices were flat in May, although there was a modest increase in the metropolitan Tokyo area and the results were better than a fall in the previous month. Household spending remained stubbornly weak, however, falling 1.6 percent from a year earlier. Those figures are a key signal for economists who have been trying to pin down whether a policy blitz from Japanese premier Shinzo Abe, dubbed "Abenomics", is taking hold. "Deflationary pressure appears to be broadly weakening," Hideki Matsumura, senior economist at the Japan Research Institute, told Dow Jones Newswires. This week, Abe said he will spend the next three years rebuilding the nation's fragile economy, having banished the gloom that covered Japan when he came to power. Since taking office in December, Abe has launched his policy prescription which blends massive monetary easing, big fiscal spending and a series of reforms aimed at freeing up businesses. Japan's sleep-walking economy has been given a jolt by the moves, with the yen shedding some of its export-sapping strength and the stock market surging. Abe faces elections in the upper house of parliament next month that are widely expected to see a resounding victory, solidifying his power base. In April, new leadership at the Bank of Japan -- handpicked by Abe -- vowed to hit a two-percent inflation target within two years, jack up asset purchases including government bonds, and double money supply. The ambitious target, a key part of the premier's bid to revive the economy, is aimed at reversing years of falling prices that have hurt private spending and business investment. Deflation is bad for the economy because it encourages consumers to put of purchases in the hopes of getting them cheaper down the road which, in turn, weighs on producers. Adding to Japan's challenges, the country's fuel imports have soared as most of its atomic reactors remain off-line since the huge earthquake and tsunami in 2011 sparked the world's worst nuclear accident in a generation. The disaster knocked Japan's already lumbering economy and forced Tokyo to turn to pricey fossil-fuel imports to plug the energy gap. Separate figures also released Friday showed Japan's jobless rate was unchanged at 4.1 percent in May.