Japan factory output in unexpected fall for June

Japan's factory output turned down unexpectedly last month, official data showed Monday, stoking concerns that turmoil overseas is damaging a recovery in the world's third-largest economy.

The output decline came amid growing fears about the fiscal situation in Europe -- a major market for Japanese products -- and a strong yen hurting demand for products from the nation's factories.

Industrial production in June edged down 0.1 percent from the previous month, said the ministry of economy, trade and industry -- smaller than a revised 3.4 percent fall in May but well short of market expectations for a 1.6 percent rise.

Underlining the downward trend, data also showed that factory output declined 2.2 percent in the April to June quarter from a year earlier.

"Industrial production appears to be flat (in June)," the ministry said in its monthly report, downgrading its earlier assessment in May, which said production was on a recovery path.

The June decrease was largely due to falling output from automakers and other transport equipment manufacturers, the electronics industry, and the iron and steel sector, it said.

A survey of manufacturers released with the production data was mixed with firms expecting factory output to rise 4.5 percent in July and fall 0.6 percent in August.

The latest figures came after central bank and government officials said Japan's economy appeared to be gaining traction, although they warned that weakness in Europe was the biggest threat to any recovery.

"Economic growth is on a much weaker trend than what the government and the Bank of Japan are telling us to believe," said Satoshi Osanai, economist at Daiwa Institute of Research in Tokyo.

"Any recovery will be temporary and the economy will continue to languish for months ahead. Exports to the US are already at high levels and have little room for additional growth," he said.

Osanai added that the positive effects of a temporary government subsidy for eco-friendly cars "have run their course".

However the data appeared to have little impact on investors who pushed up the benchmark Nikkei 225 index by 0.80 percent on Monday.

Japanese industry is facing major challenges after the country shut down its nuclear reactors in the wake of last year's atomic crisis, with industrial users being asked to make deep cuts in energy consumption.

All 50 of Japan's nuclear power stations were switched off after the March 11 tsunami, which swamped reactors at the Fukushima Daiichi plant and sent them into meltdown.

Despite widespread anti-nuclear sentiment the government later approved a plan to restart two reactors, which have now come online.

Manufacturers were hammered by last year's natural disasters, while the strong yen -- which hit record highs against the dollar last year -- has hurt exports.

Europe, a key market for everything from Japanese televisions and DVD players to cars and machinery, remains at the top of policymakers' concerns, with officials repeatedly saying the eurozone crisis was the biggest threat to economic recovery.

Naoki Murakami, chief economist at brokerage Monex, said Japanese manufacturing was not in as bad condition as the headline index suggested, but "there are signs that US-bound automobile exports that had led the production until early spring began to lose steam".

"We should pay attention to risks of outlook downgrades by major automakers when they announce results this week," he said in a note.

-- Dow Jones Newswires contributed to this article --

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