Japan’s Production Outlook Improves on Domestic Demand

Japanese manufacturers forecast the biggest jump in industrial production in over two years this month as domestic demand strengthens, adding to signs that Prime Minister Shinzo Abe can drive a sustained recovery.

Output is projected to rise 4.7 percent from September, the trade ministry said in Tokyo today, a gain that would be the biggest since May 2011. The ministry raised its assessment of production, saying it’s “picking up.” Output increased 1.5 percent in September.

Abe needs the economy to maintain momentum through April, when a sales-tax increase will likely cause a contraction. The next challenge for the prime minister is driving through business deregulation to spur long-term growth and encouraging companies to boost wages as export gains moderate.

“The underlying trend of industrial output is very supportive of Abenomics,” said Junko Nishioka, chief economist at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan official. “The key for Abenomics is the recovery of capital spending in the corporate sector.”

The Topix index climbed 0.8 percent at 10:12 a.m. in Tokyo, reversing this month’s loss as corporate earnings cheered investors. The yen was little changed at 98.17 per dollar.

Profits Surge

Japanese corporate profits are set to surge an average of 95 percent in the July-September period, after the yen posted its biggest quarterly decline in 17 years, according to data compiled by Bloomberg.

Omron Corp., a maker of electronic components and equipment for factory automation, yesterday raised its full-year profit forecast, citing the economic recovery and the weaker currency.

Japan’s regional economies are “gradually picking up,” according to a speech by Finance Minister Taro Aso read today by Vice Finance Minister Yoshihisa Furukawa.

Data yesterday also pointed to improvement in the domestic economy. Confidence of small businesses rose in October to the highest since November 2006, with more companies saying they were optimistic than pessimistic for the first time since March 2007.

Household spending last month posted the biggest gain since March, while retail sales increased the most in more than two years.

The progress at home came after the pace of export growth last month fell to all major overseas regions, with weakness concentrated in shipments to Asia.

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