Japan's industrial production plunged 3.3 percent on the month in August after an upwardly revised 3.1 percent in July and slumping 4.2 percent in June, coming in much weaker than the median economist forecast of a slight 0.5 percent drop. Auto factory output was hampered by a powerful typhoon, which more than offset the uplifting effects of solid global demand for semiconductors. METI said 12 out of the 15 industries showed declines including output of production equipment.

METI's survey of producers indicated that output is expected to rise just 0.3 percent in September before rising a further 2.0 percent in October.

From a year earlier, factory output fell 4.9 percent, much weaker than the consensus call of a 2.1 percent dip and following an upwardly revised 2.9 percent gain in July and 7.9 percent drop.

The ministry maintained its assessment, saying industrial output is"taking one step forward and one step back" after upgrading it last month. It said it will keep a close watch on how global economic growth will evolve.

Japan's industrial production is forecast to slip 0.5 percent on the month in August after an upwardly revised 3.1 percent in July and slumping 4.2 percent in June. Forecasters are split, with a few projecting a modest gain. The dampening effects of an earthquake in southwestern Japan and a powerful typhoon are believed to be partially offset by solid demand for semiconductors. METI's survey of producers indicated that output is expected to dip 0.9% in August before falling a further 3.3 percent in September.

From a year earlier, factory output is expected to drop 2.1 percent, following an upwardly revised 2.9 percent gain

Last month, the ministry upgraded its assessment, saying industrial output is"taking one step forward and one step back" Previously, it said, output"has weakened while taking one step forward and one step back."

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.