Japan Releases Positive Economic Data

Optimism was tempered by a drop in household spending and a report showing that unemployment remained steady at 4.1 percent in August.

But investors still showed confidence in Japan's economic prospects, lifting the Nikkei 225 stock index higher for a third straight session. The index rose 0.64 percent to 16,127.58.

The overall figures point in the right direction for Prime Minister Shinzo Abe, who took office Tuesday and is under pressure to sustain the economic revival that started under his predecessor, Junichiro Koizumi.

Japanese industrial production rose 1.9 percent in August from the previous month, while shipments jumped 2.5 percent, the Ministry of Economy, Trade and Industry said Friday, adding that output is in an upward trend.

While output is forecast to slip 0.1 percent in September, it is seen rising 1.8 percent the following month, the ministry said.

Meanwhile, the nation's core consumer price index rose 0.3 percent in August, the government said separately, offering fresh evidence that the economy is steadily pulling out of deflation. That follows an increase of 0.2 percent in July.

The core CPI data, which excludes volatile fresh food prices, suggest that Japan's economy is pulling out of deflation and supports the Bank of Japan's decision to raise interest rates in July for the first time in six years. Its key rate was raised to 0.25 percent from virtually zero, and attention now turns to whether the central bank will hike rates again sometime late this year or early next.

"The data boosted our confidence about Japan's economy, though we need to watch the development for another few months before deciding whether the trend is likely continue," said Keiji Kanda, an economist with Daiwa Institute of Research Ltd.

Japan has faced the danger of deflation, a continuing drop in prices that deadens economic activity by bringing down wages and profits. Most industrialized nations worry about the opposite danger - rising prices or inflation.