Tokyo: Cautious Japan-ese companies laid off more workers and hit the brakes on production in February, sending factory output down for the first time in a year.

Industrial production in the world's second-biggest economy retreated 0.9 per cent from January, following 11 consecutive months of gains, the government said yesterday. The result undershot Kyodo News agency's average market forecast of a 0.4 per cent decline.

A separate report showed Japan's unemployment rate was unchanged at 4.9 per cent in February. But the number of jobless rose 8.4 per cent from a year earlier to 3.24 million, with 1.1 million saying they were laid off.

February's output lull is expected to be temporary. The Lunar New Year holidays during the month lowered demand across Asia, and a surprisingly robust 2.7 per cent jump in January pointed toward an inevitable downturn in the following month.

The slump hit Japan's mainstay auto and high-tech sectors in particular, slowing production of LCD televisions and small passengers cars.

The government predicts the figure will climb 1.4 per cent in March as export demand in key markets such as China and the US underpins the country's economic recovery.

Concern

Still, the latest numbers offer a less than inspiring picture of Japan's economic health. Economists question whether recent improvements can be sustained and translate into stronger job and wage growth.

"The pace of improvement in overseas demand may not be sustainable, and we note that firms are cautious in their behaviour," said Goldman Sachs economist Chiwoong Lee in a note to clients. "These are not fertile conditions for a strong labour market revival."

Japan's economy grew at an annualised rate of 3.8 per cent in the October-December quarter.

But companies remain conservative with spending and are still focused on cutting costs and rebuilding profits.

Sluggish consumer demand has forced companies to slash prices, which in turn exacerbates deflationary pressures that threaten to undermine Japan's longer-term prospects.

February's core consumer price index dropped for the 12th straight month in February.

Inventories rose 1 per cent from the previous month, while shipments slipped 0.2 per cent, the government said.

The ratio of job offers to job seekers stood at a seasonally adjusted 0.47 in February, up from 0.46 last month, a labour ministry report also showed yesterday. That means there were 47 positions available for every 100 job seekers.

The number of people with employment fell 1.3 per cent to 61.85 million, the government said.