Japan on Thursday hailed upbeat factory output numbers as a turning point for the beleaguered economy as Prime Minister Shinzo Abe's new government strives to reverse the nation's fortunes.

Output rose by 2.5 percent in December from the previous month, boosted by brisk production of cars and semiconductors, as Japan's automakers were helped by vehicle demand in the crucial US market picking up.

"Industrial production shows signs of having bottomed out," the economy ministry said in a statement announcing the figures.

A survey of manufacturers in the world's third biggest economy released with the data found that producers expected another increase for January of 2.6 percent and 2.3 percent in February.

"The December figure shows Japan's production activity has hit bottom and is now on course to a gradual recovery," said Yusuke Shimoda, an economist at Tokyo-based Japan Research Institute.

"On top of a recovery in the global economy, economic measures taken by the new government are expected to push output up further. Among the potential negative factors are uncertainties about the Chinese economy."

But the rosy monthly figures fell short of a 4.0 percent rise expected by the market while factory output was down 1.9 percent in the October-December quarter from the previous three months.

Production slipped 0.3 percent over the full year, after a decline in 2011 when Japanese industry was hammered by the quake-tsunami disaster and Fukushima nuclear crisis.

Also worrying for the world's third-largest economy, Japan last week logged a record trade deficit in 2012 with exports hit by a bitter diplomatic spat with its biggest market China and soft demand in debt-wracked Europe.

Tokyo's trade deficit with Beijing doubled to a record 3.52 trillion yen last year, as a feud over a chain of islands in the East China Sea spurred anti-Japan protests across China and a consumer boycott of Japanese goods.

The long-running territorial dispute flared in September after Tokyo nationalised some of the Senkakus, which Beijing calls the Diaoyu islands.

The archipelago is believed to harbour vast mineral reserves beneath its seabed and has proved to be a sore spot between the major trading partners.

Japan's economy contracted in the third quarter after a slip in the previous three months, meeting the technical definition of a recession.

The poor trade and growth figures underscore the size of the task ahead for the new government under the hawkish Abe, which has heaped pressure on the Bank of Japan for aggressive easing measures to boost the deflation-plagued economy.

Earlier this month, Japan's under-pressure central bank adopted a two percent inflation target and also set out plans for indefinite monetary easing.

Markets have cheered Abe's strong stand. The Nikkei 225 stock index has soared in the past couple of months, while the yen has tumbled.

That is good news for Japan's exporters, who have complained about the unit's increasing strength since it hit a record around the 75-level against the dollar in late 2011. A high yen makes Japanese products less competitive overseas and shrinks the value of repatriated foreign income.

The dollar bought 90.81 yen in Tokyo trade on Thursday.