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Last Updated: Wednesday, 29 November 2006, 07:31 GMT
Japan output hits surprise record
Toyota's Auris car
Some of Japan's biggest firms are benefiting from a stronger demand
Japanese industrial output hit a record level in October, underlining optimism that the world's second-largest economy is continuing to recover.

Production unexpectedly jumped 1.6% in October compared with the previous month, the Ministry of Economy, Trade and Industry (METI) said.

Many analysts had expected output to fall because of higher interest rates.

Observers said that the output figures were likely to prompt another interest rate rise by Japan's central bank.

Driving growth

The Bank of Japan is due to meet on 18-19 December to discuss its interest rate policy.

The Bank raised interest rates to the current 0.25% level in July, ending five years of zero rates.

Some analysts said there was a chance of seeing a rate rise before the end of this year, while others were tipping a hike to come in January, 2007.

Earlier this week, Bank of Japan governor Toshihiko Fukui said that the central bank would adjust interest rates gradually so as to "facilitate the realisation of sustainable economic expansion".

Helping boost output has been strong demand for more fuel-efficient cars made by firms such as Toyota and Honda.

The Japanese yen gained against the US dollar after the release of the figures, highlighting that many expect interest rates to climb and the economy continue to recover, traders said.

Stockpile worries

One concern in October's industrial output data was an increase in unsold goods in the electronics and devices industries.

This may point to a slowdown in production in coming months, despite figures pointing to a further increase in output in November.

"The headline figure was a positive surprise as many had forecast a decline," said Noriaki Haseyama of Dai-Ichi Life Research Institute.

"But one thing to worry about is a continued rise in inventories in the information-technology sector."

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