Japan's industrial production rebounded by a solid but lower-than-expected 1.8 percent on the month in December, led by demand for conveyors, cosmetics and semiconductor-producing equipment and recovering from a 0.9 percent drop in November. The median forecast was a 2.5 percent gain.

From a year earlier, factory output unexpectedly marked a second consecutive decline, down 0.7 percent, following a 1.4 percent dip and coming in weaker than the consensus call of a 0.1 percent rise.

The METI's survey of producers indicated that output is expected to plunge 10.5 percent in January before rising a modest 2.2 percent in February. The downturn is due to suspension of all domestic production by Toyota Motor group firm Daihatsu over a vehicle safety scandal from late December until mid-February, which appears to be having a widespread impact beyond the auto industry.

The ministry maintained its assessment saying industrial output is"taking one step forward and one step back." METI said it will keep a close watch on the effects of global economic growth and suspended automobile production. It dropped the reference to the risk arising from prices as domestic inflation has been easing.

Econoday's Relative Performance Index stood at minus 21, below zero, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the RPI 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. Bank of Japan Governor Kazuo Ueda told a post-meeting news conference last week that accommodative monetary conditions would remain even after the bank decides to lift its negative overnight interest rate target.

Japan's industrial production is forecast to rebound by a solid 2.5 percent on the month in December, led by semiconductor-producing equipment, after slipping 0.9 percent in November and rising 1.3 percent in October. From a year earlier, factory output is seen nearly flat, up just 0.1 percent, after falling 1.4 percent in the prior month. METI is expected to maintain its assessment that industrial output is"taking one step forward and one step back."

The METI's survey of producers last month indicated that output was set to post a 3.2 percent rebound in December before slumping 7.2 percent in January. There is a downside risk to this outlook due to a shipment and production halt announced by Toyota Motor group firm Daihatsu over a vehicle safety scandal after the survey was conducted. The suspension was originally scheduled to last until the end of January but has been extended until mid-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.