Japan's industrial production unexpectedly fell in April from the previous month but was forecast to rebound in the months ahead, suggesting the corporate sector will keep supporting a steady economic recovery.
The data did little to change market expectations that the Bank of Japan will raise interest rates around August to keep on top of inflation.
Output fell 0.1 per cent in April from March for the second straight month of decrease, worse than a consensus forecast for a 0.5 per cent rise. Euroyen futures edged up as a result.
But manufacturers' upbeat output forecasts for the coming months eased worries over the economy's strength, resulting in Japanese government bonds slipping on chances of future rate hikes.
"The data is slightly weaker than expected. It is mainly due to continuing inventory adjustments in the electronics devices sector and slowing exports to the United States," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.
"As long as output grows in April-June, it would not delay any rate hike decision by the Bank of Japan," he said.
Manufacturers forecast that output will rise 1.8 per cent in May and rise 1.4 per cent in June, data from the Ministry of Economy, Trade and Industry showed today.
If the forecasts prove correct, industrial production is expected to rise 1.7 per cent in April-June from the previous quarter, a ministry official told a briefing.
The December euro yen futures contract rose 1.5 basis points to 99.035 after the data, while June 10-year JGB futures hit a nine-month low of 133.04 before bouncing back to around 133.20.
The BOJ has kept monetary policy on hold since raising the key interest rate to a decade-high 0.50 per cent in February, which was the first rate hike since July last year.
Surprisingly strong figures on jobs and household spending released yesterday reinforced the view that the central bank could raise rates as early as in July-September.