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Japanese industrial production fell more than expected in October, signaling the possibility of a steeper contraction in economic growth ahead and boosting the case for a bigger government stimulus package.

The global slowdown, a sales tax hike and a super typhoon contributed to a 4.2% slide in factory output from a month earlier, matching the worst drop in the last five-and-a-half years and falling more than twice as much as economists forecast, data from the economy ministry showed Friday.

The steep drop, following declines in retail sales and exports, comes as the government mulls stimulus measures to help the economy cope with the typhoon damage, weak external demand and the hit to consumers from the tax increase.

More fiscal stimulus would be good news for the Bank of Japan, which has appeared reluctant to ramp up its own massive stimulus program, as it strains at the limits of effectiveness.

Key Insights

• Economists have been surprised at the extent to which October’s super storm has hurt economic indicators. But weak production forecasts for the rest of the quarter suggest a weaker underlying trend following October’s 2 percentage point tax increase in the sales tax.
• “We must be ready for a big contraction this quarter,” said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute. “It won’t be a surprise if growth is worse than the market consensus.”
• Economists have forecast GDP will shrink 2.7% this quarter -- much less than the 7.3% contraction that followed a previous tax hike in 2014, thanks to tax breaks designed to support spending.
• “Factories cut back on production after the sales tax and the typhoon also had an impact,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “This makes it easier to call for a large stimulus package.”

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• Friday’s production report shows manufacturers expect to cut output 1.5% in November.
• The jobless rate was at 2.4% in October, matching economists’ forecast and hovering just above a multi-decade low, data from the ministry of internal affairs showed.
• The job-to-applicant ratio held steady at 1.57 in October, meaning there were 157 jobs available for every 100 applicants. The measure was at a 45-year high of 1.63 in April.
• A separate report Friday showed Tokyo’s core consumer prices, a leading indicator of nationwide price trends, rose 0.6% in November, matching the median forecast from economists.
• Stripping out fresh food and energy, Tokyo’s consumer prices increased 0.7%, also matching the forecast.