Is the Japanese economy recovering? Factory output and retail sales have significantly rebounded.

According to a Reuters survey on fx678 Huitong websiteFriday, Japan's factory output likely grew for the second consecutive month in April, while retail sales also rebounded, indicating signs of economic recovery.

The core consumer price index (CPI) in the Tokyo area likely accelerated in May, with this data released a month ahead of national figures.

Many analysts expect the economy to rebound this quarter, having contracted at an annualized rate of 2% in the first three months of the year. The rising inflation, driven by the devaluation of the yen, has made consumers more cautious in their spending.

Analysts from SMBC Nikko Securities wrote in a report, "With the resumption of operations at automobile factories, demand for transportation machinery will continue to rise. Additionally, the recovery in overseas demand will help boost output of chip manufacturing and other production machinery."

The survey showed that a majority of the 18 economists polled believed factory output in April grew by 0.9% from the previous month, compared to a 4.4% increase in March.

Due to the increase in renewable energy taxes, the core CPI in the Tokyo area (excluding fresh food prices) is expected to accelerate to 1.9% year-on-year in May, up from 1.6% in April.

CPI data, as a leading indicator of inflation, is set to be released on May 31.

Another government report on Friday showed that the national core CPI rose 2.2% year-on-year in April, slightly slowing but still remaining at or above the Bank of Japan's 2% target for two consecutive years, complicating the central bank’s efforts for further rate hikes.

In March, the Bank of Japan conducted its first rate hike since 2007, a significant shift from negative interest rates.

Data set to be released on May 31 will likely show the unemployment rate holding steady at 2.6%, with 1.28 jobs available for every applicant.

Retail sales growth in April is expected to accelerate to 1.9% year-on-year, up from 1.2% the previous month, largely reflecting private consumption, which accounts for more than half of the national economic output.

The decline in housing starts is expected to ease, with a forecasted drop of 0.2% in April, compared to a 12.8% decline in March.

Data on industrial production, retail sales, and housing starts are expected to be released on May 31.

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