The Japan Thread

TOKYO, Dec 28 (Reuters) - Japan's industrial production grew for a fourth straight month in November while retail sales rose year-on-year, data showed on Wednesday, the latest in a string of upbeat figures underscoring strong economic growth.

Industrial output rose 1.4 percent in November from a month earlier. While that fell short of the market's median forecast of 1.8 percent growth, analysts said it still highlighted a solid recovery that has pushed Tokyo share prices to five-year highs.

The gain followed rises of 0.6 percent in October and 0.4 percent in September.

"We can say the economy has finally emerged from a soft patch," said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management.

"Overall, inventory adjustments are over and we should see more improvement ahead."

The output index rose to 103.5, its highest since current calculation methods began seven years ago.

Economists pointed to a firm outlook for the months ahead as a sign of continued economic expansion.

Manufacturers' output, the core component of production, is expected to rise 4.7 percent in December before retreating 2.0 percent in January, data from the Ministry of Economy, Trade and Industry showed.

The broad-based nature of the rise in output proved that both exports and domestic demand were supporting growth, economists said.

A breakdown showed the rise was led by general machinery, automobiles and electronic parts such as semiconductor-related items. Output of mobile phones and personal computers also rose.

"The output figure was below expectations, but it doesn't change our view that the underlying expansionary trend continues," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.

"The sectors we had expected to expand, such as general machinery and electric machinery, did indeed get a boost from the capital spending boom," Tsunoda said.

Data earlier this month showed exports rose 14.7 percent in November, the first double-digit growth in a year as foreigners bought more Japanese cars and electronics.

Confidence in the world's second-biggest economy has boosted Tokyo shares by around 20 percent in the past 3 months. The benchmark Nikkei average rose 1.41 percent on Wednesday to end at a new five-year closing high of 16,194.61.

DOMESTIC DEMAND ALSO STRONG

Domestic demand has also underpinned Japan's recent economic recovery. The economy grew 1.0 percent on an annualised basis in the July-September quarter, the third straight quarter of growth.

It is expected to post modest growth throughout 2006. The government said earlier this month that real gross domestic product will likely grow 1.9 percent in the fiscal year from next April.

Separate data released on Wednesday showed sales at large retail stores in November rose 0.8 percent year-on-year on a same-store basis, the first rise in 21 months.

All-store retail sales rose 0.1 percent from a year earlier, less than the consensus forecast of 0.8 percent growth, but overall commercial sales, including wholesale, rose a healthy 3.9 percent.

A ministry official said colder-than-usual winter weather may have helped sales. Higher sales of fuel products as well as clothing contributed to the rise.

In a sign of more improvement ahead in consumer sentiment, separate data showed wage earners' average overtime pay in November rose from a year earlier for the 40th month in a row.

Overtime pay, a barometer of income conditions, rose 0.8 percent from the same month last year to 19,792 yen ($170). In October, overtime pay rose 2.0 percent year-on-year, revised up from an initial estimate of a 0.1 percent decline.