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Last Updated: Tuesday, 29 November 2005, 11:14 GMT
Better times for Japanese economy
Japanese worker walks on scaffolding at building site in Tokyo
Japan's economy seems to be stretching its legs
Japan's improving economic environment was highlighted by a number of reports on Tuesday, although some of the figures missed market expectations.

Industrial output rose for a third month during October, as production and household spending also improved.

While the unemployment rate rose, it was because more people registered as jobless to look for work as conditions improved, the statistical office said.

As the economy picks up, Japanese shares are pushing to five-year highs.

However, the benchmark Nikkei 225 index failed to break the 15,000 point mark on Tuesday, closing 0.4% lower at 14,927.70, partly because the output report was worse than expected.

Moderate pace

Industrial production rose 0.6% in October from a month earlier. Analysts had forecast growth of 1.3% after an increase of 0.4% in September.

"Output was slightly weaker than expected, but I wouldn't worry too much," said Seiji Adachi, an analyst at Deutsche Securities.

Analysts said they were optimistic about the outlook for output, after a period in which companies seemed to have been selling off stock rather than boosting production.

With inventory levels now depleted, a pick-up in output is forecast for coming months.

The Ministry of Economy, Trade and Industry said output was now climbing at a "moderate pace", after an earlier view that it was "flat".

There are signs that foreign demand is picking up after a slowdown, as is the domestic appetite for consumer spending, as wages and job prospects improve.

A separate government report showed that spending in households with a wage-earner rose by 1.3% in October from a year earlier.

Gradual fall

The unemployment rate, meanwhile, crept up to 4.5% last month from 4.2% in September.

"It was partly due to more people voluntarily leaving to look for better jobs as wages are rising, as opposed to companies laying off workers," said Naoki Iizuka, chief economist at Dai-ichi Life Research Institute.

"I expect the unemployment rate will gradually fall to the 3% level, albeit with some fluctuations," he forecast.

Japan's economic environment has been improving, and in recent weeks, there have been reports that years of deflation may be coming to an end.

In October, consumer prices failed to fall for the first time in five months.

Government figures showed that Japan's economy expanded at a faster-than-expected 0.4% in the third quarter, boosted by strong domestic demand.

However, policymakers have warned against over optimism and said that it was still key for policymakers to keep conditions as positive as possible for growth.

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