Japan's industrial production slipped a seasonally adjusted 3.6 percent on the month in June, giving up all of the sharp 3.6 percent rebound (revised up from 2.8 percent) in May, hit by more revelations of false safety test records in June, this time at Toyota Motor itself, instead of its subsidiaries, as well as at other major automakers. The decline was smaller than the median forecast of a 4.9 percent slump and all of the forecasts that ranged from 5.5 percent to 4.0 percent drops. The first decrease in two months was also due to lower output of production machinery (semiconductor-making equipment and excavators) and general machinery such as conveyors and turbines.

Production rose 2.9 percent on quarter in the April-June period after plunging 5.2 percent in January-March when suspended vehicle output and shipments over a safety test scandal caused a widespread slump beyond the auto industry and also hurt consumption.

From a year earlier, factory output slipped back 7.3 percent after rising a solid 1.1 percent (revised up from a 0.3 percent rise) in May for the first increase in seven months and slumping 1.8 percent in April. It was slightly smaller than the consensus forecast of a 7.6 percent fall.

The METI's survey of producers indicated that output is expected to rise 4.0 percent in July after adjustment for upward bias, led by a rebound in production machinery and electronic parts/devices, before rising a further 0.7 percent in August on higher output of electric and information communications equipment which may include lithium-ion rechargeable batteries.

The ministry maintained its assessment after downgrading it for the first time in six months in the January report, saying industrial output"has weakened while taking one step forward and one step back." The METI repeated that it will keep a close watch on the effects of global economic growth and suspended automobile production.

Shipments of capital goods excluding transport equipment -- a key indicator of business investment in equipment in GDP data -- rose 0.5 percent on quarter in April-June after slipping 2.0 percent in January-March, rising 0.9 percent in October-December and falling 3.2 percent in July-September 2023.

This indicates a possible rebound in business investment in equipment, which fell 0.4 percent on quarter in January-March in payback for a sharp 2.0 percent rebound in October-December. Capex made a negative 0.1-point contribution to the first quarter GDP after providing a positive 0.3-point contribution the previous quarter.

Japan's economy is expected to show modest growth of about 2 percent annualized in the second quarter, recovering only partially from a 2.9 percent slump (a 0.7 percent drop on quarter) in the first quarter, which was revised down sharply this month due to large-scale revisions to recent construction investment data. The 0.7 percent drop on quarter was caused by both weak domestic demand (downward revision to public works spending) and a pullback in net exports, each trimming total output by 0.4 percentage point. The economy narrowly averted a second straight contraction in the final quarter of 2023, showing zero growth on quarter, or an annualized 0.1 percent increase.

Econoday's Relative Performance Index stands at plus 24, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the RPI is plus 53.

Japan's industrial production is forecast to slump 4.9 percent on the month in June in payback for an upwardly revised sharp 3.6 percent rebound in May on a 0.9 percent slip in April. Resumed auto production in March helped lift output in May but more revelations of false safety test records in June, this time at Toyota Motor itself, instead of its subsidiaries, as well as at other major automakers appear to have dented overall output. The METI's survey of producers indicated that output is expected to fall 6.0 percent in June before partially rebounding 3.6 percent in July.

From a year earlier, factory output is expected to post the first drop in two months, down 7.6 percent, following an upwardly revised 1.1 percent rise in the prior month, which was the first increase in seven months.

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.