Japan’s industrial output rose by more than expected in January, stoking hopes for an at least temporary pickup in the country’s factory activity. Coming in at 3.7%, the number beat consensus forecasts for a 3.3% increase but concerns have mounted over the lingering effects of notable global market nervousness and softening demand both at home and abroad.

The rise, the fastest gain since January last year, was led by auto production, electronic parts and machinery but did little to foster optimism among manufacturers whose expectations for the coming months remain subdued.

“The challenges facing Japan remain stubbornly difficult to address,” noted Harry Coolidge, a senior economist at Mizuho Corporate Global. “It appears that just as things seem to get going, something comes along – whether that be attributable to domestic or foreign factors – to pour cold water on any progress.”

Indeed, retail sales data for January appeared to confirm the negative sentiment falling 0.1% year on year and 1.1% month-to-month. The number served to highlight the weakness in private consumption, which makes up 60% of the Japanese economy.

The prospect of yet another technical recession – defined as two consecutive quarters of economic contraction – highlights the absence of a growth engine for Japan’s economy.

“This data will only increase expectations among investors for the Bank of Japan to ride to the rescue with more monetary stimulus in the form of quantitative easing despite the fact that it doesn’t appear to be trickling down to consumers. Many ordinary Japanese are tightening their belts as the cost of food and staples rise,” concluded Coolidge.

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