Unemployment remains stubbornly high

But the figures contrasted sharply with evidence that much of Japan's economy remains in trouble, with unemployment still stubbornly high and household spending failing to show any signs of an upturn.

The industrial output gain, of 0.5% in July, was put down to the apparent improvement in the US economy by observers.

Production of electronic goods including mobile phones and digital cameras was sharply higher, and vendors such as Sony are speaking of continuing their push for bigger market share in areas such as flat-screen TVs.

The gain in output reflects recent figures showing the economy has now expanded for six straight quarters, and a IMF report leaked this week which boosted predictions of growth to above 1% for 2003.

Troubles at home

But the worry remains that domestic spending - Japan's Achilles heel throughout the past decade of unerperformance - has yet to break out of the doldrums.

Unemployment in July was stuck at 5.3%, unchanged from the previous month and not far off the all-time high of 5.5%.

And household spending sank 6% over the year to July, reflecting worries about job security and undermining the chances of a domestic upturn.

Retail sales figures accentuated the situation, showing a 3% year-on-year fall and a 28th straight month of decline.