(Bloomberg) -- Japan’s factories produced less while retailers sold more in November, pointing to the patchy nature of the economy’s recovery from its summer slump as the central bank tries to assess when the nation will be ready for its first interest rate hike since 2007.

Industrial production edged down 0.9% from October as the output of automobiles, information technology equipment and general machinery fell, outweighing an uptick in chip-making gear, the industry ministry said Thursday. The drop was a touch less than expected, but still leaves output 1.4% lower than a year earlier. 

A separate report showed retail sales rose 1% from October, around twice the figure projected by analysts, and 5.3% above year-earlier levels, helped by ongoing inflation.

The reports point to the uneven recovery of the economy as the BOJ looks for a solid return to overall growth to build its case for raising interest rates in the coming months. The results indicate weakness in the manufacturing sector in contrast to signs of expanding activity in the service and retail sectors.

With factory output in the US also falling, Japan’s manufacturing sector is likely to remain in a poor condition in the first half of next year, making it unlikely the BOJ will opt for an early policy shift in January, according to Takeshi Minami, economist at Norinchukin Research Institute.

“Even though this is only the manufacturing sector, with another big drop in industrial output expected in January, it’s not a great environment or the right timing to be raising rates,” Minami said.

Two-thirds of economists surveyed in December expect the BOJ to raise rates by April. That month is also seen as the most likely month for the move as it would give the central bank time to assess the March results of annual wage negotiations, a key factor in determining whether Japan’s inflation trend has reached a positive cycle.

With the most recent data showing the economy shrinking over the summer, the central bank may also want to wait until a return to growth in the fourth quarter is confirmed by gross domestic product figures due in mid-February. Overall, analysts expect the economy to eke out annualized growth of 0.8% in the last quarter, thereby avoiding a technical recession and clearing another hurdle for the BOJ as it considers the timing for a rate hike. 

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The slide in output comes as the environment for external demand darkens. The Federal Reserve sent a signal earlier this month that it’s prepared to pivot to an easing cycle next year in pursuit of a soft landing. Economists see a higher chance the European economy fell into a technical recession in the fourth quarter, and recent economic indicators for China provided a grim picture as the real estate market continues to slump.

The resilient domestic consumption, inflated by rising prices, was likely sustained by pent-up demand for travel and dining in the first autumn without pandemic restrictions, as well as by surging numbers of inbound tourists. 

Foreign visitors to Japan topped 2 million for a sixth consecutive month in November, Japan’s National Tourism Organization said earlier this month. The number of visitors came to 2.4 million, recovering to roughly the same levels as in the same month in 2019, before the pandemic, with tourists from Singapore, Europe and the US among those pushing the total higher.

Separate production managers index figures released this month point to the divergent trend continuing in December. The au Jibun Bank’s PMI showed activity in the manufacturing sector matching a three-year low while in the service sector it expanded at a faster pace.

“I don’t think we have reached the point where we can be confident that deflation will end, and today’s data doesn’t change that view,” Minami said.

--With assistance from Jon Herskovitz.

(Updates with economist comments.)

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