Japan's factory output fell by a less-than-expected 0.3 percent in March, data showed Thursday, but the still-weak statistics underscored an uncertain recovery in the world's number three economy.
The reading from Japan's trade ministry marked an improvement from the 3.1 percent drop registered in February, and beat the market median forecast for a 2.3 percent drop in a survey of economists by the Nikkei business daily.
But the ministry kept its tepid view on industrial output unchanged in its monthly report, saying "industrial production shows signs of increase at a moderate pace".
A survey of manufacturers' output projections released with the data said production would turn up 2.1 percent in April before falling back 0.3 percent in May.
"However, companies tend to overstate the future strength of output, so the actual results will likely be weaker," Marcel Thieliant at Capital Economics said in commentary.
The figures highlight the mixed bag of data that Japan has seen recently.
Retail sales for March logged their sharpest drop in about 17 years, while Japan posted its first monthly trade surplus in almost three years as North American exports soared and energy bills fell.
However, inflation stalled in February with a key measure of prices flat for the first time in nearly two years -- dealing another blow to Prime Minister Shinzo Abe's bid to conquer deflation and revive the sluggish economy.
March inflation figures are due Friday.
A sales tax hike last year hammered consumer spending, and briefly sent the economy into recession. Japan crept out of contraction in the last quarter of 2014.
"The decline in industrial production in March was much less pronounced than expected and suggests that GDP growth remained solid last quarter," Thieliant said.
"As such, it would provide an excuse for the Bank of Japan to leave policy settings unchanged at its meeting later today."
- ' Stimulus speculation' -
The BoJ wraps up a one-day meeting later Thursday with speculation running high that weakness in the economy will push policymakers to unleash more stimulus later this year.
Bank chief Haruhiko Kuroda has acknowledged that dragging Japan out of years of deflation was proving to be "very challenging", and he warned that inflation may temporarily fall to zero.
Inflation is a key gauge of Abe's plan to end years of stagnant or falling prices that have been blamed for holding back economic growth.
While deflation may sound good for Japanese consumers, it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.
That, in turn, hurts producers and holds back their expansion and hiring plans, which is bad news for the wider economy.
The central bank surprised markets in October when it expanded its already huge asset-buying plan that aims to pump money into the wider economy and stimulate growth, similar to the US Federal Reserve's quantitative easing plan.
The Fed wrapped up its bond-buying scheme and is eyeing an interest rate hike, possibly later this year, although it dampened hopes for rate hike in June after it finished its own policy meeting on Wednesday.