Japan's industrial production plunged 7.5 percent on the month in January, hit by suspended vehicle output over a safety test scandal, after rebounding by a downwardly revised 1.4 percent in December and falling 0.9 percent in November. The median forecast was a 7.0 percent drop.

From a year earlier, factory output posted a third straight drop, down 1.5 percent (versus consensus of a 1.8 percent decline), after marking an unexpected fall of a downwardly revised 1.0 percent in the prior month. The powerful New Year's Day earthquake in the northwestern region of Hokuriku has also reduced electronic parts supply.

The January slump was caused by suspension of all domestic production by Toyota Motor group firm Daihatsu over a vehicle safety scandal from late December until mid-February, which officials said would have a widespread impact beyond the auto industry. To make matters worse, Toyota said in late January that it would suspend shipments of 10 models after its supplier Toyota Industries admitted to cheating on engine testing.

The Ministry of Economy, Trade and Industry's survey of producers indicated that output is expected to post a modest 0.8 percent gain in February and rise a further 2.0 percent in March. The ministry downgraded its assessment for the first time in six months, saying industrial output"has weakened while taking one step forward and one step back." Previously, it had simply said output was"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, as in last month's statement.

In its monthly economic report for February released last week, the Japanese government downgraded its overall assessment for the first time in three months, saying while the economy is recovering moderately, consumption has turned weaker amid elevated costs and production has been hit by suspended vehicle output.

Econoday's Relative Performance Index stands at plus 2, just above zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the RPI is at minus 16.

Japanese policymakers believe the economy still needs continued monetary and fiscal policy support to achieve sustainable wage growth and stable 2 percent inflation. BoJ leaders have said financial conditions will remain accommodative even after the bank's board decides to lift the negative short-term interest rate, an action widely expected sometime between April and July.

Japan's industrial production is forecast to plunge 7.0 percent on the month in January, hit by suspended vehicle output over a safety test scandal, after rebounding by a downwardly revised 1.4 percent in December and falling 0.9 percent in November. From a year earlier, factory output is expected to post a third straight drop, down 1.8 percent, after a revised 1.0 percent dip in the prior month. The powerful New Year's Day earthquake in the northwestern region of Hokuriku has also reduced electronic parts supply.

The METI's survey of producers last month indicated that output was set 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. To make matters worse, Toyota said in late January that it would suspend shipments of 10 models after its supplier Toyota Industries admitted to cheating on engine testing.

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.