May 29, 2:04 AM EDT

Weaker Japanese yen adds uncertainty as factory output, inflation lag expectations

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TOKYO (AP) -- Japanese data on Friday showed a mixed outlook for the world's third-largest economy while a renewed decline in the value of the yen is adding to uncertainty over whether the recovery is gaining ground.

By some measures, Japan's economy is on the upswing as share prices surge thanks to exporters profiting from the weak yen. But by others, the recovery is still limping along.

Japan's jobless rate dropped to an 18-year low in April, but industrial production, inflation and household spending were muted as consumers kept their purse strings tight.

Unemployment rate was 3.3 percent in April, the lowest since April 1997, after firms stepped up hiring. However, the rising competition for labor is having a limited impact on wages, with most income increases coming in the form of bonuses and other incentive pay.

"While the labor market continues to tighten, inflation remains near zero and wages are barely rising," Marcel Thieliant of Capital Economics said in a commentary. "The rise in industrial production in April did not reverse the sharp falls in prior months, leaving output set for the first contraction" since July-September, 2014.

The economy emerged from recession late last year, growing at a faster-than-expected 2.4 percent annual pace in January-March. But economists say weak factory output will likely keep growth flat in this quarter.

Factory output rose a seasonally adjusted 1.0 percent from April 2014, and is projected to grow only 0.5 percent in May before falling 0.5 percent in June.

Household incomes rose 2 percent from the year before, but their spending fell 1.3 percent from a year earlier and 5.5 percent from March.

Aggressive monetary easing by the Bank of Japan combined with pressures pushing the U.S. dollar higher recently pulled the Japanese yen to 124.45, its weakest level against the dollar since 2002. On Friday, the yen was trading at about 123.70.

The weaker yen stemming from so-called "Abenomics" policies under Prime Minister Shinzo Abe should fan inflation, due to rising costs for imports. But the recent spell of cheaper oil prices has cut energy costs.

The core consumer price index, excluding volatile food prices, rose just 0.3 percent in April, well below the 2 percent inflation target set by the central bank and government two years ago.

The cheaper yen pads the profits of big export companies like Toyota Motor Corp. but is hard on smaller manufacturers who must pay more for imported components and energy. Even bigger exporters tend to chafe when the exchange rate changes much since they must recalibrate their own spending and corporate strategies to fit.

Finance Minister Taro Aso, speaking on the sidelines of a Group of Seven meeting in Dresden, Germany, described the yen's recent dip against the dollar as "rough."

"A weakening yen has, so far, been the single strongest component of Abenomics.," Richard Katz of The Oriental Economist said in a commentary Thursday. But it has also caused a bit of a political backlash, particularly among consumers and small and medium enterprises, who are hurt by rising prices."

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