Japan's industrial production rebounded on the month in June after posting its first drop in four months in May, led by automobiles amid improving supply chains as well as electronic parts and general machinery, preliminary data released Monday by the Ministry of Economy, Trade and Industry showed.

From a year earlier, factory output fell 0.4 percent for an eighth decrease in the past 12 months.

The METI's survey of producers indicated that monthly output is expected to give up all of June's gain in July before posting a modest gain in August.

The ministry maintained its assessment after upgrading it in April for the March data, saying industrial output"is showing signs of a gradual pickup." The METI repeated that it will keep a close watch on the effects of parts and materials supply shortages and rising prices.

The Econoday Consensus Divergence Index stood at minus 29, below zero, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the index was at minus 38.

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

Industrial production rebounded a seasonally adjusted 2.0 percent on the month in June, coming in slightly weaker than the median economist forecast of a 2.4 percent rise (forecasts ranged from 1.8 percent to 3.5 percent gains). It followed a 2.2 percent drop (revised down from a 1.6 percent fall) in May, a 0.7 percent rise in April, a 0.3 percent gain in March, a 3.7 percent rebound in February and a 3.9 percent dip in January.

Of the 15 industries, 10 posted increases from the previous month, led by the auto sector, and five recorded decreases. Demand for transmission and steering parts came from the recovering domestic auto industry while solid production of trucks rose in line with solid sales in both domestic and overseas markets.

Production rose a seasonally adjusted 1.3 percent on quarter in the April-June period after falling 1.8 percent in January-March and slipping 1.7 percent in October-December and rebounding 3.1 percent in July-September last year.

Based on its survey of manufacturers, METI projected that industrial production would dip 0.2 percent on the month in July (revised up from a 0.6 percent drop forecast last month) and rise 1.1 percent in August. Adjusting the upward bias in output plans, however, METI forecast production would slip 2.7 percent in July.

Shipments of capital goods excluding transport equipment -- a key indicator of business investment in equipment in GDP data -- rebounded 3.7 percent on quarter in April-June after slumping 6.5 percent in January-March, falling 5.1 percent in October-December after rising 8.1 percent in July-September. Capital investment is expected to post a second straight quarterly gain to support solid economic growth in the second quarter in the preliminary Q2 GDP data due on August 15.

From a year earlier, the production index edged down 0.4 percent in June for an eighth drop in the past 12 months after rising 4.2 percent (revised down from 4.7 percent) in May, which was the first increase in seven months. It was weaker than the median economist forecast of a 0.3 percent rise (forecasts ranged from being unchanged to a 1.3 percent rise).

The index of industrial production (100 = 2020) stood at 105.3 in June, up from 103.2 in May. It is well above the recent bottom of 87.6 hit in May 2020 but below 108.8 seen in January 2020, when the pandemic hadn't had a widespread impact yet. The index briefly jumped to 108.8 in April 2021, 109.0 in June 2021 and 107.8 in August 2022.

Japan's industrial production is forecast to have rebounded 2.4 percent on the month in June led by automobiles and production machinery on improving supply chains and amid mixed global demand, with US and Japanese economies recovering moderately. It would be the first increase in two months after output fell a revised 2.2 percent in May for its first drop in four months. From a year earlier, production is seen posting its second straight gain, up a slight 0.3 percent, following a 4.2 percent jump in May.

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.