By Leika Kihara
TOKYO (Reuters) - Japan's factory output fell for the first time in three months in November, data showed on Monday, a sign that weak emerging market demand continues to cloud prospects for a sustained recovery in the world's third largest economy.
But manufacturers expect to increase output in the coming months, offering some relief for the Bank of Japan as it struggles to jump-start growth and accelerate inflation toward its 2 percent target.
Industrial output fell 1.0 percent in November from the previous month, more than a median market forecast for a 0.6 percent decline, trade ministry data showed.
"Factory output is moving sideways," the government said, keeping its assessment on industrial production unchanged from last month.
Separate data showed that retail sales fell 1.0 percent in November from a year earlier, more than a median market forecast for a 0.6 percent drop.
Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said November output "was not good. I think factory output has stopped falling but it's not strong enough to say it is rebounding."
"One bright side is the expected rise in manufacturers' forecast for January and there may be expectations that factory output will improve early next year," he said.
Analysts expect factory output to gradually increase early in 2016 as automakers ramp up production of new models, though sluggish emerging market demand dims the outlook for exports.
Manufacturers surveyed by the ministry indeed expect to increase production by 0.9 percent in December and raise it by 6.0 percent in January, suggesting that companies remain fairly upbeat on the business outlook.
Japan's economy narrowly dodged recession in July-September and analysts expect only modest growth in the current quarter, as consumption and exports lack steam.
Wary of soft growth, the government plans nearly $800 billion (536 billion pounds) in record spending in the budget for the fiscal year that will begin on April 1.
On Dec. 18, the BOJ fine-tuned its stimulus programme to ensure it can keep up or even accelerate its money-printing to achieve its inflation target.