Japan hit by electronics slowdown

Analysts are warning of a "soft patch" in production

Japan's industrial output slipped unexpectedly in May, hit by falling production of electronic devices and information technology products.

May's industrial production fell 0.4% from April, disappointing analysts who had been expecting a rise of 0.8% after April's 0.1% decline.

The Ministry of Economy, Trade and Industry said production was "flat".

Analysts said the data was not likely to affect the central bank's cautious stance towards raising interest rates.

'Modest rebound'

However, seeking to ease concerns over May's dip, the ministry predicted that output would rebound, rising by 1.9% in June and 1.7% in July.

A rebound is also possible in the coming months as companies prepare for the build-up to the 2008 Beijing Olympics.

On the downside, sluggishness in the US economy has meant falling demand for Japanese products, including cars.

"Until the US economy regains momentum, industrial output may see a repeat of the events of 2004-2005, when Japan slipped into a soft patch," warned Norinchukin Research Institute senior economist Takeshi Minami.

But he added: "Given the generally accepted view that the US economy will soon move out of the doldrums, industrial output here is likely to start showing some signs of a modest rebound in the July-September quarter."