TOKYO (Reuters) -- Japan's factory output rose more than expected in January, in a sign of relief for an economy facing heightened risks of slipping into a recession as the coronavirus outbreak in China disrupts supply chains and business activity.
The world's third-largest economy shrank at the fastest pace in almost six years in the December quarter as a nationwide tax hike hurt business and consumer spending and exports suffered from soft overseas demand.
Official data showed factory output rose 0.8% in January from the previous month, a faster expansion than the 0.2% gain in a Reuters forecast. That followed a downwardly revised 1.2% rise in the previous month, the first advance in three months.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to gain 5.3% in February and slump 6.9% in March, the data showed.
The February forecast was based on company's plans for the month up to Feb. 10, a ministry official told reporters, meaning that output cuts over the coronavirus after that date are not included in the forecast.
Production was lifted by a sharp increase in output of cars and other transport equipment, which offset a decrease in output of production machinery, the data showed.
Inventories rose at their fastest pace in since March 2018, rising 1.5% in January from the previous month, boosted by higher inventories of cars and production machinery.
Separate data released on Friday showed retail sales dropped 0.4% in January, falling at a slower pace than expected by analysts.
Friday's data batch follows a string of weak indicators in recent weeks, including manufacturing and service sector activity gauges indicating the fallout from the new coronavirus outbreak has taken a toll on the economy.
The better-than-expected output reading could provide some relief to government and central bank policymakers already under pressure to boost growth as the coronavirus hangs over the economic outlook.
The government also released unemployment figures on Friday, which showed the nationwide jobless rate rose while the jobs-to-applicants ration slipped, though that was partly ascribed to a change in the survey method.
"The rise in the unemployment rate coupled with a sharp fall in the job-to-applicant ratio last month suggests that the economic fallout from the sales tax hike has started to curb firms' demand for workers," Tom Learmouth, Japan economist at Capital Economics, said in a note.
The seasonally adjusted unemployment rate rose to 2.4% in January from 2.2% in December, and the jobs-to-applicants ratio fell to 1.49 in January from 1.57 in the previous month, government data showed.