Strong demand for Japanese made-goods has lifted recovery hopes

Official data showed that industrial output rose 3.3% in April compared with March, and was up by a record 8.5% on the same period a year earlier.

Separate figures showed that the jobless rate stood at 4.7% in April, unchanged from the previous month.

Investors welcomed the news, marking Japanese shares sharply higher.

The Nikkei index of leading Japanese stocks was up 1.4% at 11,322 by lunchtime in Tokyo.

Analysts said the industrial output figures had shored up hopes that the Japanese economy was on the mend after ten years of stagnation.

Bouncing back

"It suggests that we've seen the fastest growth in over a decade in industrial production," said Richard Jerram at ING Securities.

Japan owes its change in fortunes to booming export demand from China and other fast-growing Asian countries.

There is evidence now that the export-led rebound is feeding through to the wider economy.

Some analysts believe Japanese consumer spending - long weighed down by price deflation and weak sentiment - may also be poised to recover.

While the headline unemployment rate was unchanged in April, the underlying trend is improving, with the number of people in work climbing for the fifth consecutive month to 63.5 million.

The latest 4.7% jobless rate is down sharply from a record high of 5.5% in January last year.

Separate data out on Friday showed that spending by Japanese wage earner households - a key barometer of wider consumer demand - rose by a stronger than expected 9.3% in April compared with the previous month.

The figures helped offset surprisingly weak April retail sales data out on Thursday.

"Household spending showed a spectacular rebound from March. I don't think this pace can be sustained, but the employment environment is improving," said Seiji Adachi at Credit Suisse First Boston.