Japan data shows more economic gloom

TOKYO - Japanese factories slowed in November, spelling out the daunting task that lies ahead for a new conservative government in reviving the world's third-largest economy.

The 1.7 per cent drop in output from a month earlier - worse than a 0.5 per cent decline expected by the market - came as the Liberal Democratic Party took power this week on a campaign that pledged to inject new life into the limp economy, after it won a landslide election earlier this month.

Japanese firms have been hurt by a strong yen, turmoil in the key European market and the global economic slowdown, confounding the nation's recovery from the 2011 quake-tsunami disaster and nuclear crisis.

A territorial dispute with Beijing has also weighed on exports due to a consumer boycott of Japanese goods in China stemming from the spat.

The latest figures reversed a 1.6 per cent uptick in October factory production, with the economy ministry repeating its warning that output was "on a downward trend".

A survey of manufacturers, however, offered a measure of positive news with producers expecting output to rise 6.7 per cent in December and 2.4 per cent in January.

Masamichi Adachi, senior economist at JPMorgan Securities Japan, was cautiously optimistic, saying production would "probably" turn positive in the first quarter of 2013.

And that "will probably lead to positive growth in gross domestic product as well", Adachi told Dow Jones Newswires.

Separate data Friday showed consumer prices slipped 0.1 per cent on-year.

Japan has yet to reverse the deflation that has haunted its economy for years.

The nation's new leader, Shinzo Abe, has threatened to revise a law guaranteeing the Bank of Japan's (BoJ) independence if it refuses to adopt a two per cent inflation target - part of his get-tough fix for the economy.

There has been tension between Abe and BoJ governor Masaaki Shirakawa on policy issues, with the new premier earlier saying he wants to replace the bank chief when his term ends in April.

Japan's new finance minister Taro Aso reportedly met Shirakawa earlier Friday with a message from his new boss to strengthen communication between government and the central bank.

Last week, the BoJ launched its third major round of monetary easing since September after its counterparts in the US and Europe also made big policy moves.

But critics, notably Abe, say Japan's central bank has not done enough to turn around the lumbering economy.

The bank's own quarterly Tankan survey this month showed confidence among Japanese manufacturers hit a near three-year low in the final months of 2012.

Abe's LDP officially took power Wednesday as the yen weakened - and Tokyo's stock market rose - on speculation that the 58-year-old's pressure campaign on the central bank would see it roll out more aggressive action.

But the new administration faces a daunting task.

Japan's economy contracted in the third quarter and may have slipped into recession, while November's trade deficit widened nearly 38 per cent from a year earlier.

The result pushed exports to the US ahead of those to China for the first time in nearly a year, although Beijing remained Tokyo's biggest overall trade partner despite their simmering dispute over an East China Sea island chain.

Abe has pledged to take a hardline stance in the long-standing row, which flared badly in September after Tokyo nationalised the small archipelago.

That set off a bitter diplomatic battle, huge anti-Japan protests across China and a consumer boycott that weighed heavily on China sales of well-known Japanese brands, including those of top automakers Toyota, Nissan and Honda.

In other data released Friday, Japan's unemployment rate slipped to 4.1 per cent in November from 4.2 per cent the previous month.