By Tetsushi Kajimoto and Stanley White
TOKYO (Reuters) - Japan's factory output unexpectedly fell in February at the fastest pace in eight months, leaving the economy in a precarious position as an impending sales tax hike threatens to choke consumption and undermine the government's revival plan.
Analysts say that with the national sales tax rising to 8 percent from 5 percent on Tuesday, the Bank of Japan will probably need to inject more stimulus to safeguard a recovery amid a recent loss of momentum.
Ministry of Economy, Trade and Industry (METI) data showed on Tuesday industrial output fell 2.3 percent in February from the previous month, versus a 0.3 percent rise seen by economists in a Reuters poll.
That followed a solid 3.8 percent gain in January, which was driven by brisk production of cars and household appliances.
Manufacturers surveyed by the ministry expect output to rise 0.9 percent in March but decrease 0.6 percent in April, the METI said, shrugging off the weak February reading as a one-off factor due to unusually heavy snow that disrupted factory activity.
Still, analysts said the outlook for the economy remains challenging at best, noting a recent string of soft data and a separate survey on Monday showing manufacturing activity grew at a slower pace in March.
"Companies are curbing production to keep inventories low because they are worried about demand after the sales tax hike," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co.
"This suggests the economy may not rebound quickly, and the burden may fall on the BOJ as the government has already committed to fiscal stimulus spending."
Japan's economy sped past its developed country peers in the first half of last year, spurred by Tokyo's aggressive fiscal and monetary stimulus, but has since slowed steadily as exports and capital spending lagged.
With the data indicating the benefits of last-minute demand before the tax hike has probably run their course, external demand may need to pick up some of the slack.
"While capital spending is likely to underpin economic activity ahead, external demand, particularly China, poses a risk to the Japanese economy," said Naoki Iizuka, economist at Citigroup Global Markets Japan.
In China, worries of a sharp slowdown there have stoked speculation Beijing will launch stimulus measures to bolster growth.
BOJ tankan eyed
Analysts are also looking out for the Bank of Japan's key tankan survey due on Tuesday, which may offer clues on any impacts of the sales tax hike on business sentiment in the three months to March and their outlook in the following quarter.