Nov. 29 (Bloomberg) -- Japan's industrial production rose to a record in October, underscoring the economy's reliance on exports as demand at home wanes.

Production climbed a seasonally adjusted 1.6 percent from a month earlier, when it fell 1.4 percent, the Trade Ministry said in Tokyo today. The median forecast of 42 economists surveyed by Bloomberg News was for a 1.5 percent gain.

Toyota Motor Corp. increased output last month to meet rising demand from Europe and Asia, easing concern that a housing recession in the U.S. will hurt Japan's economic growth. The world's second-largest economy is relying on production and exports to fuel the expansion as falling wages and rising unemployment damp spending by consumers at home.

``Production will remain solid at least through the end of the year,'' said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo. ``A key issue is how much the U.S. subprime loan problem will hurt overseas demand.''

The yen traded at 110.05 per dollar at 1:26 p.m. in Tokyo from 109.96 before the report was published. The yield on Japan's 10-year bond was unchanged at 1.485 percent.

Export growth doubled to 13.9 percent in October from a year earlier, as Chinese and Europeans bought more fuel- efficient cars. Output of autos, trucks and other transportation equipment, which make up a tenth of production, helped the production index climb to a record 112.1, today's report showed.

`Resilient' Exports

``Exports have been resilient,'' said Yasuo Yamamoto, a senior economist at Mizuho Research Institute Ltd. in Tokyo. ``Demand from emerging economies is strong and that's going to drive production this quarter.''

Toyota, Japan's largest carmaker, boosted production by 12.9 percent, the biggest increase in almost a year. Exports from the maker of Camry sedans surged 19 percent, the steepest gain since January. Honda Motor Co. and Nissan Motor Co. also lifted output.

Asian and European demand helped South Korean production climb 3 percent in October, the fastest pace in six months, a report showed yesterday. The country's current-account surplus widened to an 11-month high last month as exports rose, the Bank of Korea said today.

``Many emerging countries, mainly Asian economies, still maintain a solid pace of growth,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``Industries such as autos will continue to boost their production to recover the losses caused by an earthquake in July.''

Earthquake Disruption

The earthquake in Niigata Prefecture, northwest Japan, forced parts maker Riken Corp. to close all of its domestic plants for a week, disrupting supplies to automakers and causing industrial output to decline in the month.

Higher demand has helped electronics makers cut stockpiles accumulated this year. Inventories of electronic parts fell for a third month, the ministry said.

``Inventory adjustments are almost completely over,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. Today's report ``suggests that production is on a gradual rising trend.''

Inventory buildup in the sector, which accounts for a tenth of output, almost pushed Japan into recession in 2004, when companies had to rein in production to reduce stockpiles.

From a year earlier, output climbed 4.7 percent, the fastest pace in 10 months.

The gains in production come at a time when Japan's consumer, whose purchases make up more than half of the economy, is losing steam. Consumer sentiment fell to a three-year low in October and wages have declined for nine of the past 10 months.

Rising Unemployment

Economists expect a report tomorrow to show the unemployment rate held steady at 4 percent after rising for two consecutive months, dimming hopes that improving job prospects will prompt consumers to spend.

``Consumption won't be able to prop up the economy,'' said Azusa Kato, an economist at BNP Paribas Securities Japan Ltd. in Tokyo. ``The labor market, the only bright spot, appears to be weakening so we can't count on strong spending.''

Production will fall 1.7 percent in November from October, according to businesses surveyed in today's report. It's likely to rebound 3.2 percent in December.

A slump in housing investment sparked by a regulation change is already forcing some companies to cut output to deplete inventories of building materials.

Nippon Steel Corp., Japan's largest steelmaker, plans to reduce manufacturing of some of its beams as stockpiles accumulate. Tokyo Steel Manufacturing Co., the nation's biggest H-beam producer, will make fewer girders.

Housing starts tumbled 44 percent to a four-decade low in September as stricter rules for obtaining building permits caused delays in construction. They fell 36.3 percent last month, economists predict a report will show tomorrow.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net

Last Updated: November 28, 2007 23:34 EST