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December 1, 2009

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Japan's economy hit as factory output stumbles

GROWTH in Japan's factory output stumbled in October, falling short of expectations and adding another kink in the country's fragile recovery.

Industrial production - a key barometer of Japan's economic health - edged up 0.5 percent from September, the government said yesterday. Output rose 2.1 percent in September from August.

The government, which had estimated a 3.1 percent gain, said factory production "continues to show an upward movement." But the underwhelming figure suggests that the world's second-biggest economy may be losing steam as stimulus spending tapers off.

And there are fresh worries about deflation and a strong yen - a dangerous duo threatening to derail growth.

Last Friday the government said October's core consumer prices index fell at a near-record pace of 2.2 percent from a year earlier.

Prices have now fallen for eight straight months, and the government recently issued its first warning about deflation since 2006.

The news coincided with a sharp appreciation of the yen, which hit a 14-year high against the dollar last Friday. The dollar has recovered since then to the mid-86 yen level.

Junko Nishioka, chief economist at RBS Securities Japan, describes the latest output figure as a "bad start" to the quarter that could drag overall business activity.

Lackluster momentum in the auto and high-tech sectors offset strength among general machinery makers.


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