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Japan factory output seen up, inflation complicates BOJ exit

By Tetsushi Kajimoto

TOKYO (Reuters) – Japanese factory output likely grew for a second straight month in April while retail sales picked up, a Reuters poll showed on Friday, highlighting budding signs of an economic recovery.

The rise in core consumer prices (CPI) in Tokyo areas, which become available a month earlier than nationwide, likely quickened in May.

Many analysts expect the economy to bottom out, returning to growth this quarter. The economy contracted an annualized 2% in the first three months of this year as rising inflation driven by the weak yen made consumers more cautious about spending.

“A pick-up in transport equipment machinery will continue due to resumption of car factory activity. In addition, a recovery in demand overseas will help push up output of chip-making and other production machinery,” analysts at SMBC Nikko Securities wrote in a note.

The poll of 18 economists found factory output likely grew 0.9% in April from a month earlier, following a 4.4% gain in March.

The Tokyo-area May core CPI, which excludes fresh food prices, likely accelerated to a year-on-year rise of 1.9% from 1.6% in April due to an increase in renewable energy levy.

The CPI data, which serves as a leading gauge of inflation, will be published on May 31.

On Friday, separate government data showed the nationwide core CPI rose 2.2% year-on-year in April, slowing a bit but remaining at or above the central bank’s 2% target for more than two years, complicating the Bank of Japan’s efforts to raise rates further.

The central bank raised rates in March for the first time since 2007 in a landmark shift away from negative interest rates.

Data due on May 31 will likely show a steady jobless rate at 2.6%, with 1.28 jobs available for every job seeker.

Year-on-year growth in retail sales likely accelerated to 1.9% in April from 1.2% in the previous month, broadly reflecting private consumption that accounts for more than half of the country’s economic output.

A slump in housing starts is expected to ease, with starts seen down 0.2% in April from a 12.8% slide in March.

Data on industrial output, retail sales and housing starts is due out on May 31.

(Reporting by Tetsushi Kajimoto; Editing by Subhranshu Sahu)

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