Positive predictions for May and June were further signs that Japan is recovering from the global slowdown which has dragged Asia's largest economy into the steepest recession since the second world war.

Companies making electric parts, chemicals and transport equipment posted particularly strong gains.

'Upward movement'

"Industrial production shows signs of an upward movement," the ministry said, upgrading its assessment from "sluggish" in March.

Manufacturers were also bullish in their outlook, forecasting output to soar 8.8 per cent in May and 2.7 per cent in June due to improving global demand.

"This part of the data is very positive," said Norio Miyagawa, an economist at Shinko Research Institute, adding the data indicates that "output will likely remain firm this year".

The latest figures raised expectations that Japan's economy could start to expand again in the second quarter after shrinking four per cent quarter-on-quarter in the three months to end-March.

But the cost cuts that have benefited companies are taking a greater toll on the workers, families and the thousands of non-manufacturers who employ 70 per cent of the workforce.

Rising unemployment

Meanwhile, Japan's jobless rate rose to five per cent, the highest in nearly six years, while household spending and consumer prices declined.

Separate data released on Friday showed there were only 46 job offers for every 100 job seekers, matching the worst-ever figure in June 1999.

"Since unemployment is a lagging indicator ... further deterioration seems to be in store as the current real economy is reflected"

Chiwoong Lee, economist at Goldman Sachs, Tokyo

The total number of jobless people climbed by 710,000 from a year earlier to 3.46 million, the ministry of internal affairs and communications said.

Household spending fell 1.3 per cent in April from the previous year, the government said a day after it released other data showing retail sales dropped 2.9 per cent in the month.

Household spending is considered a key indicator of individual consumption, which represents more than half of Japan's economy.

Hit by an unprecedented slowdown in global demand late last year, Japanese manufacturers responded aggressively by slashing production and jobs in an effort to lower costs and trim stockpiles.

Chiwoong Lee, an economist at Goldman Sachs in Tokyo, predicted unemployment will rise to record levels and hit six per cent by the end of 2010, warning that weak consumption and expanding job losses could reverse the recovery in industrial output later in the year.

"Since unemployment is a lagging indicator ... further deterioration seems to be in store as the current real economy is reflected," he said.