Japan's industrial production was flat in December on cooling global demand, but down by a smaller-than-expected 0.1 percent, after an upwardly revised slight gain in November and a slump in October, as lower output of general machines was partly offset by recovery in the auto sector, preliminary data released Tuesday by the Ministry of Economy, Trade and Industry showed.

Last week, the government downgraded its overall economic assessment for the first time in 11 months, citing slower growth in exports amid weaker global demand, while maintaining its view that modest recovery is in place, according to its monthly report released by the Cabinet Office.

The METI's survey of producers indicated that output is likely to decline further in January and rebound in February.

The ministry maintained its view after downgrading it for the second straight month, saying industrial output"has weakened." Previously, it had said, production was"picking up gradually but also showing weakness in some areas." The METI repeated that it will keep a close watch on the impact of a rise in Covid cases on domestic and global growth as well as parts and materials supply shortages and rising prices.

The Econoday Consensus Divergence Index stood at plus 19, above zero, which indicates the Japanese economy is performing better than expected after underperforming recently and outperforming with a wide margin last year. Excluding the impact of inflation, the index was at plus 28.

Japanese policymakers have said the economy needs monetary and fiscal policy support to achieve sustainable wage growth and stable 2 percent inflation.

Industrial production dipped a seasonally adjusted 0.1 percent on the month in December, coming in firmer than the median economist forecast of a 1.2 percent fall (forecasts ranged from a 1.8 percent drop to a 0.1 percent rise). It followed a 0.2 percent rebound (revised up from an initial 0.1 percent drop), a 3.2 percent slump in October, a 1.7 percent drop in September and gains of 3.4 percent in August and 0.8 percent in July. The 9.2 percent surge in June 2022 was due to the reopening of Shanghai after two months of a Covid lockdown of the port city, which supported the regional supply chain.

Of the 15 industries, 10 posted decreases, and four recorded increases and one was unchanged from the previous month.

Factory production fell a seasonally adjusted 3.1 percent on the quarter in the October-December period after rebounding 5.8 percent in July-September and falling 2.7 percent in April-June.

For the whole of 2022, output fell an unadjusted 0.1 percent on year after rising 5.6 percent in 2021, plunging 10.4 percent in 2020 and falling 3.0 percent in 2019.

Shipments of capital goods excluding transport equipment -- a key indicator of domestic demand in GDP data -- fell 7.1 percent on quarter in October-December after surging 13.1 percent in July-September, rising 1.3 percent in April-June and being flat in the first quarter of 2022.

Based on its survey of manufacturers, METI projected that industrial production would be flat on the month in January (revised up from a 0.6 percent drop forecast last month) and rise 4.1 percent in February. Adjusting the upward bias in output plans, however, METI forecast production would slump 4.2 percent in January.

The weakness in production is reflected in exports. The Bank of Japan's real export index slumped a seasonally adjusted 4.7 percent on the month in December after edging up 0.1 percent in November. The index rose just 0.7 percent on quarter in October-December after rising 3.0 percent in July-September.

Japan's industrial production is forecast to have fallen 1.3 percent on the month in December, after a slight 0.2 percent gain (revised up from a 0.1 percent dip) in November and a slump in October, in light of cooling global demand as seen in a 4.7 percent drop in real exports in December, led by lower shipments of capital goods as well as automobiles after recent gains.

From a year earlier, production is seen falling 3.9 percent in December for a second straight drop after posting its first fall in four months in November (revised up to a 0.9 percent drop from a 1.3 percent fall).

Industrial Production measures the physical output of the nation's factories, mines and utilities. Factories manufacture various products, and the industrial production indexes have been prepared as a comprehensive indicator of wide-ranging production activities for such products and are regarded as some of the most important among economic indexes.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that won't lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.

Industrial production provides key industry data for this export-dependent economy. The data are issued twice a month-a preliminary estimate at the end of the month for the preceding month and a revised estimate about two weeks later. All products, whether sold domestically or abroad, are included in the calculation of industrial production. Industrial production is highly sensitive to the business cycle and can often predict future changes in employment, earnings and income. For these reasons industrial production is considered a reliable leading indicator that conveys information about the overall health of the economy. This report has a big influence on market behavior. In any given month, one can see whether capital goods or consumer goods are growing more rapidly. Are manufacturers still producing construction supplies and other materials? This detailed report shows which sectors of the economy are growing and which are not.