Japan's industrial production posted its first drop in two months in March, down 1.1% on the month, hit by slower demand for the auto industry (passenger cars, small vehicles), electrical/information devices (switching apparatus, ultrasonic equipment) and general/business machines (conveyors, engines).

The Ministry of Economy, Trade and Industry said 10 out of the 15 industries recorded declines while five showed gains. METI's survey of producers indicated that output would slump 2.5% in April, pulled down by a further drop in electrical/information devices, before rising 3.9% in May, led by a rebound in autos and electrical/information equipment.

In the January-March quarter, production slipped 0.7% on quarter following gains of 0.4% in Q4, 0.3% in Q3 and 2.1% in Q2 of 2024.

In Q1, capital goods shipments (ex-transport equipment) fell 2.4% on quarter after rebounding 3.4% in Q4 on the 2.9% dip in Q3, indicating capex in Q1 GDP were softer (data due May. 16). The gross domestic product is expected by many economists to be nearly flat after growing 0.6% on quarter (2.2% annualized) for the third straight rise in Q4, when technical rebound in exports offset a dip in domestic demand.

From a year earlier, factory output marked its first drop in three months, down 0.3%, after rising just 0.1% (revised down from +0.3%) in February and rebounding a partial 2.2% in January on the 6.7% plunge in January 2024 that was triggered by suspension of all domestic production by Toyota Motor group firm Daihatsu over a vehicle safety scandal from late December until mid-February, which had a widespread impact beyond the auto industry.

The ministry maintained its assessment, saying industrial output is"taking one step forward and one step back." It said it will keep a close watch on how global economic growth evolves. In its monthly report for April, Japan's government maintained its cautiously optimistic assessment for the eighth straight month, saying the economy is expected stay on a modest recovery track, but highlighted the growing uncertainty around the world triggered by the protectionist U.S. trade policy under the current administration.

Japan’s industrial production is forecast to post its first drop in two months in March, down 0.9%, hit by softer export demand and in playback for a sharp 2.3% rebound in February, which was the first increase in four months. The Bank of Japan’s real export index showed a 3.2% slip on the month in March amid a pullback in the auto industry and technology sector (smartphones, computer chips and steppers for producing integrated circuits among others), although the index registered a solid 3.2% rise on quarter in Q1 (vs. 0.3% dip in Q4), thanks to a 7.4% jump in February.

Looking ahead, the actual drag from the global trade war launched by President Trump is unlikely to show much in April yet but on-and-off tariff rhetoric and imposition is keeping manufacturers cautious about drawing up production plans and earnings outlook. The monthly survey by the Ministry of Economy, Trade and Industry released last month indicated that output would edge up 0.6% in March (a rare case of the same figure after adjustment for the production index’s upward bias), led by a continued rise in the output of production machinery, before turning nearly flat (+0.1%) in April.

From a year earlier, factory output is expected to be unchanged in March (forecasts ranged widely from -0.5% to +2.1%) after rising just 0.1% (revised down from +0.3%) in February and rebounding a partial 2.2% in January on the 6.7% plunge in January 2024 that was triggered by suspension of all domestic production by Toyota Motor group firm Daihatsu over a vehicle safety scandal from late December until mid-February, which had a widespread impact beyond the auto industry.

Last month, the ministry maintained its assessment, saying industrial output is"taking one step forward and one step back." It said it will keep a close watch on how global economic growth evolves. In its monthly report for April, Japan’s government maintained its cautiously optimistic overall assessment for the eighth straight month, saying the economy is expected stay on a “modest recovery” track, but highlighted the growing uncertainty around the world triggered by the protectionist U.S. trade policy under the current administration.

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.