Japan's economy is gaining momentum, data for October showed, with consumer prices excluding food and energy rising 0.3 per cent from a year earlier, the biggest gain since 1998. 

The slew of indicators released Friday suggests that the ultra-loose monetary policy and stimulus strategy of Prime Minister Shinzo Abe is helping end a long bout of deflation for the world's No. 3 economy.

Japan has not had any inflation since October 2008, considered a worrying trend and a sign of little economic growth.

Economy Minister Akira Amari said today that Abenomics is starting to bring about the end of deflation. The Bank of Japan has a target of two per cent inflation.

Industrial output rises

Industrial output rose 0.5 per cent in October, the second straight month of increase, driven by increases in production of machinery used to make computer chips and other industrial products, plastics and cellphones.

The government reported that excluding food, the core consumer price index rose 0.9 per cent from the year before. Including both food and energy, prices rose 1.1 per cent. Japanese consumers have faced a 22 per cent increase in electricity prices since the Fukushima nuclear plant was damaged in a tsunami three years ago.

In a down note, household spending remained tepid, as incomes slipped from the same month a year before. Households face the prospect of sustained inflation for the first time in almost a generation, a dynamic that could hurt spending unless wages begin to rise.

Japan's jobless rate remained flat in October, though the number of jobs available rose slightly.

Further improvement is expected in November, driven by strength in housing construction and exports.

"Business conditions in the Japanese manufacturing economy improved for the ninth consecutive month and at a rapid pace in November, driven for the most part by an expansion of both foreign and domestic demand," said Claudia Tillbrooke, an economist at Markit.

Markit's purchasing managers index, which measures manufacturing activity, rose to 55.1 in November from 54.2 in October. A reading above 50 suggests expansion.

Weaker yen helped increase prices

So far, economists say most of the increase in prices has come from a weakening in the Japanese yen, which erodes consumer spending power and increases costs in yen terms for imports of fuel, food and industrial components.

The 0.3 per cent rise in prices excluding food and fuel was the highest since August 1998 and the first positive reading since 2008.

Prices for many daily necessities have risen. The data from October showed costs for electricity rose 8.2 per cent, food prices rose 14 per cent, transport costs climbed 3 per cent, gasoline 7 per cent and insurance rates 10 per cent.

Japan's economy grew 1.9 per cent in July-September, sharply lower than the 3.8 per cent rise in the previous quarter. A planned 0.3 percentage point increase in April in the national sales tax, to 8 per cent, is expected to push consumer spending higher in coming months, before a drop following the tax hike.

To sustain the recovery that began late last year, economists say companies must invest more and raise wages. Progress toward those goals appears limited.

Workers' incomes fell an average of 1.3 per cent in October. Household spending, which accounts for nearly two-thirds of Japan's economic activity, rose 0.9 per cent in real terms but showed no increase from the month before. Excluding housing costs, spending fell 1.5 per cent from the month before and fell 0.3 per cent from September.