AFP - Japan's consumer prices slid last month as deflation kept a grip on the ailing economy, data showed Tuesday, but an uptick in factory output provided a glimmer of hope.
The figures came as Japan's stuttering recovery is hobbled by a strong yen, which hurts the key export sector, and after Tokyo last week forecast that growth will slow to a real 1.5 percent next year from 3.1 percent this year.
Finance Minister Yoshihiko Noda described the yen's recent rise -- the unit was sitting at 82.67 against the dollar by mid-morning -- as "one-sided" and threatened to intervene if currency markets are hit by "excessive volatility".
Japan, long hampered by weak domestic demand, saw its core consumer price index fall for a 21st straight month in November, dropping 0.5 percent from a year ago, although slightly less than the 0.6 percent experts had predicted.
The stubborn price drops, which hurt companies and cost jobs, indicate Japan will find it hard to beat deflation alone, given factors such as its shrinking population, said HSBC Securities chief economist Seiji Shiraishi.
"Deflation may ease if the global economic conditions prove strong, (and) help Japan's external demand," which could help boost Japanese exports and eventually rekindle domestic demand, he told Dow Jones Newswires.
Japan has long conceded that its battle against deflation has been difficult. Although the government predicts the CPI will stop falling in mid-2011, it said this would not mean the defeat of chronic deflation.
Despite the long-term woes, there was a more immediate ray of hope in the first rise in industrial output for half a year, with factory production in November up 1.0 percent from the previous month.
The reading matched market expectations and reflected a pickup in auto production, which has been supported by the government's just-ended incentive programme for purchases of "green cars" such as Toyota's hybrid Prius.
Output in electronics parts, mobile telephones and machinery parts also helped lift overall production, much of it similarly boosted by various public assistance programmes, the industry ministry said.
Government stimulus measures also included subsidy programmes for purchases of environmentally friendly appliances such as flat-screen TVs.
The ministry also said it expected factory production to continue rising -- by 3.4 percent month on month in December and 3.7 percent in January -- with steel products and auto parts seen to go up in tandem with auto production.
HSBC's Shiraishi said the ministry's forecasts seemed "bit too strong" but served as a "positive sign" going forward.
Satoru Osanai, an economist at Daiwa Institute of Research, also said the forecast seemed a little optimistic, but added that it may be achieved if foreign economies improve significantly.
But Osanai cautioned that the fading effects of stimulus programmes in China -- Japan's top trade partner -- posed worries for Japanese exports.
In separate data Tuesday, the unemployment remained at 5.1 percent in November, unchanged from the previous month and matching market expectations.
