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Economy

Japan's Q4 factory output falls at fastest pace on record

TOKYO (Reuters) -- Japan's factory output fell at the fastest pace on record in October-December amid sluggish demand at home and abroad, reinforcing views the economy likely contracted in the fourth quarter.

Separate data showed retail sales fell for a third straight month in December, adding to worries about consumer spending after a sales tax increase in October.

A growing virus outbreak in China is threatening to put more pressure on the Japanese economy. China is Japan's second largest export market and Chinese account for 30% of all tourists visiting the country.

Factory output fell 4.0% in October-December, the fastest pace of decline since comparable data began in 2013, data from the Ministry of Economy, Trade and Industry (METI) showed on Friday.

But in an encouraging sign, factory output grew 1.3% in the month of December, compared with a median estimate for a 0.7% gain in a Reuters poll of economists. That followed a 1.0% decline in November and a 4.5% drop in October.

And manufacturers surveyed by the ministry expect production to rise 3.5% in January and grow 4.1% in February.

Still, the ministry kept its assessment of output, saying it is weakening.

Retail sales - a key gauge of private consumption - fell 2.6% in December from a year earlier, down for a third straight month and compared with a 1.8% decline expected by economists.

The Bank of Japan last week kept policy steady and nudged up its growth forecasts, citing subsiding global risks. But Governor Haruhiko Kuroda stressed his resolve to keep policy ultra-loose amid lingering uncertainties.

The government cut its assessment of capital spending in January for the first time in eight months due to softer global demand but said its overall view of the economy was unchanged from December.

Analysts polled by Reuters earlier this month forecast the economy contracted by an annualised 3.6% in October-December, but believe it will rebound modestly in the current quarter.

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