Japan's industrial production posted a modest on the month in March after a sharp rebound in February and a plunge in January, thanks to easing parts supply constraints for the auto industry and higher domestic and overseas demand for production machinery, preliminary data released Friday by the Ministry of Economy, Trade and Industry showed.

From a year earlier, factory output marked a fifth straight decline, which was smaller than expected.

The METI's survey of producers indicated that output is likely to post a slight gain in April before falling in May.

The ministry upgraded its assessment after downgrading it in November, saying industrial output"is showing signs of a gradual pickup." Previously, it had said, production"has weakened."

The METI said it will keep a close watch on the effects of parts and materials supply shortages and rising prices. It dropped its reference to the impact of a rise in Covid cases on domestic and global growth as it has been largely contained in Japan.

The Econoday Consensus Divergence Index stood at plus 27, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the index was at plus 33.

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

Industrial production rose a seasonally adjusted 0.8 percent on the month in March, coming in firmer than the median economist forecast of a 0.3 percent rise (forecasts ranged from a 0.3 percent drop to a 1.8 percent gain). It followed a 4.6 percent rebound (revised from a 4.5 percent rise) in February, a 5.3 percent slump in January and a 0.3 percent rise in December.

Based on its survey of manufacturers, METI projected that industrial production would rise 4.1 percent on the month in April (revised down from a 5.8 percent rise forecast last month) and dip 2.0 percent in May. Adjusting the upward bias in output plans, however, METI forecast production would rise 1.8 percent in April.

Factory production slipped a seasonally adjusted 1.8 percent on quarter in the January-March period after falling 3.0. percent in October-December, rebounding 5.8 percent in July-September and falling 2.7 percent in April-June last year.

In fiscal 2022 that ended in March, output fell an unadjusted 0.2 percent on year after rising 5.8 percent in fiscal 2021, slumping 9.6 percent in fiscal 2020 and sliding 3.8 percent in fiscal 2019. Global growth is slowing after last year's aggressive credit tightening by major central banks.

Shipments of capital goods excluding transport equipment -- a key indicator of business investment in equipment in GDP data -- slumped 6.4 percent on quarter in January-March after falling 6.9 percent on quarter in October-December after surging 13.1 percent in July-September and rising 1.3 percent in April-June. It is making a possible rebound in capital investment uncertain, which is one of the key factors for solid growth in the first quarter GDP due on May 17.

Economists expect Japan's economy to post a modest 1.6 percent gain at an annualized pace in January-March, led by resilient consumer spending and a rebound in business investment in equipment, after a slight 0.1 percent rise in the previous quarter. Capital investment marked its first drop in three quarters in October-December, down 0.5 percent on quarter, following solid gains.

From a year earlier, the production index fell 0.7 percent in March, marking the fifth straight drop after dipping 0.5 percent (revised from a 0.6 percent fall) in February. The decline was smaller than the median economist forecast of a 1.9 percent fall (forecasts ranged from 1.9 percent to 0.4 percent drops).

Japan's industrial production is seen nearly flat, up just 0.3 percent on the month in March after posting a strong 4.6 percent rebound in February. Improving parts supply is supporting the auto industry but overall factory output is slowing amid weaker global demand. From a year earlier, production is expected to mark a fifth straight decline, down 1.2 percent, after sliding 0.5 percent in February.

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.