Japan's industrial production unexpectedly fell on the month for the first drop in three months, hit by weaker global demand for equipment to produce semiconductors and flat-panel displays, preliminary data released Wednesday by the Ministry of Economy, Trade and Industry showed.

From a year earlier, factory output marked its sixth consecutive drop, also coming in weaker than expected.

The METI's survey of producers indicated that output is expected to record a second straight monthly drop in May amid slowing global economic growth before rebounding moderately in June.

The ministry maintained its assessment after upgrading it April for the March data, saying industrial output"is showing signs of a gradual pickup." Previously, it had said, production"has weakened."

The METI repeated that it will keep a close watch on the effects of parts and materials supply shortages and rising prices. Last month, 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 minus 11, below zero, which indicates the Japanese economy is performing slightly worse than expected after outperforming recently. Excluding the impact of inflation, the index was at minus 10.

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

Industrial production fell a seasonally adjusted 0.4 percent on the month in April, coming in much weaker than the median economist forecast of a 1.8 percent rise (forecasts ranged from 1.1 percent to 1.9 percent gains). It followed a 1.1 percent rise (revised up from a 0.8 percent rise) in March, a 4.6 percent rebound 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 1.9 percent on the month in May (revised from a 2.0 percent fall forecast last month) and gain 1.2 percent in June. Adjusting the upward bias in output plans, however, METI forecast production would fall 2.6 percent in May.

From a year earlier, the production index dipped 0.3 percent in April, marking the sixth straight drop after falling 0.6 percent (revised from a 0.7 percent fall) in March. It was weaker than the median economist forecast of a 1.9 percent rise (forecasts ranged from 1.6 percent to 2.0 percent gains).

The index of industrial production (100 in the 2015 base year) stood at 95.5 in April, down slightly from 95.9 in March but above 94.9 in February and an eight-month low of 90.7 in January. It is well above the recent bottom of 77.2 hit in May 2020 but below 99.1 seen in January 2020, when the pandemic hadn't had a widespread impact yet. The index briefly jumped to 100.2 in August 2022.

Of the 15 industries, five posted decreases from the previous month, nine recorded increases and one was unchanged. Makers of semiconductor-producing equipment faced slower global and domestic demand and those of flat-panel displays saw lower orders from overseas.

Production fell during the first wave of the pandemic in 2020. After a pickup later that year, more waves of infections caused logistical bottlenecks amid reopening demand and prompted parts supply delays from Southeast Asia, where lockdowns hit factory operations in August 2021. Later, easing supply bottlenecks pushed up production from October to December 2021. Output has since fluctuated widely, ending fiscal 2022 to March 2023 with a slight 0.2 percent drop on the year following a 5.8 percent jump in fiscal 2021 and a 9.6 percent slump in fiscal 2020.

Japan's industrial production is forecast to post a third straight monthly gain in April, up 1.8 percent after an upwardly revised 1.1 percent rise in March, as improving parts supply has been supporting the auto industry and a rise in real exports indicates overseas demand for electronics devices and production machinery remains solid. From a year earlier, factory output is expected to mark its first increase in six months, up 1.9 percent, following a revised 0.6 percent dip the previous month.

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.