Japan approves $10.7 billion stimulus package

Tokyo on Friday approved $10.7 billion in fresh spending to help boost Japan's limp economy, just weeks before an election the ruling party is expected to lose.

The 880 billion yen ($10.7 billion) in spending was more than double a package announced in October as the country gets set for polls that are expected to usher in Japan's seventh prime minister in six years.

However, the move, which came as official data showed Japan posted a surprise uptick in factory production last month, threatened to trigger vote-buying criticism from opposition lawmakers.

The spending will focus on boosting growth in a range of sectors, including healthcare and agriculture, as well as on public works projects following last year's quake-tsunami disaster.

Opinion polls suggest Prime Minister Yoshihiko Noda and his Democratic Party of Japan will be defeated by the country's main opposition leader Shinzo Abe, who heads the Liberal Democratic Party.

Abe has vowed to spend heavily on public works and pressure the Bank of Japan into launching aggressive monetary easing measures to boost growth if his party wins the December 16 vote.

The BoJ has unveiled two policy easing measures in recent months as its counterparts in the US and Europe launched huge moves to counter slowing growth.

Japan's economy contracted in the July-September quarter, nudging it toward recession and dousing hopes the nation had cemented a recovery after last year's twin disasters, which triggered the worst atomic crisis in a generation.

Masamichi Adachi, a senior economist at J.P. Morgan Securities, questioned the effectiveness of the latest government stimulus.

"While (the package) wouldn't be a poison, it wouldn't be a medicine either," Adachi told Dow Jones Newswires.

A glimmer of hope emerged Friday as official data showed Japan's factory output rose 1.8 percent in October, the first rise in four months and beating market expectations of a 2.2 percent drop.

Separate figures showed the jobless rate held steady while household spending for the month was better than expected, suggesting a possible improvement in consumer confidence.

The unexpected output jump -- and a producers' survey that forecast a 7.5 output output rise in December after a small decline for November -- gave the Tokyo stock market a little boost with the benchmark Nikkei 225 index adding 0.48 percent by the close.

But the economy ministry doused hopes that the latest data was something to cheer about, saying in a statement that output was on a "downward trend".

Credit Agricole economist Kazuhiko Ogata cautioned against optimism, saying a sustained recovery would depend on stronger overseas demand for Japanese exports, while producers will have to bring down their built-up inventory.

"A bottom-out of production would be confirmed only after the turn of the year at the earliest," Ogata said.

Chris Tedder, research analyst at Forex.com in Sydney, said the new figures quelled "some concern of a prolonged slowdown in the world's third-largest economy".

But "overall, the data isn't enough to turn us away from predicting a recession in Japan this quarter", he added.

As the weak European market dents demand for Japanese exports, a territorial row over islands in the East China Sea claimed by Tokyo and Beijing has also affected the trade balance owing to a consumer boycott of Japanese brands.

Japan's top three automakers -- Toyota, Nissan and Honda -- have reported that the row with China has dug into their sales and profits, with October data on Thursday showing the trio slashed their output in China, the world's biggest vehicle market.

Some analysts have predicted the slump in China demand may turn around early in the new year.