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Japan industrial output drops in February

Japanese factory output declined more than expected in February as companies curbed output due to the Lunar New Year holiday.

Japan's industrial production fell 3.4 percent on month in February, data from the Ministry of Economy, Trade and Industry (METI) showed on Monday, worse than expectations for a 1.8 percent decline in a Reuters poll. That marked fastest pace of decline since June 2014.

"Clearly today's report is a little worse than expected," Jesper Koll, managing director and head of Japanese equity research at JPMorgan Securities told CNBC.

Kazunori Nagashima | Stone | Getty Images

"As you pointed out these are volatile numbers, and we do know that there was a bit of an inventory overhang that Japanese companies have accumulated, remember the fiscal year starts on April the 1st, so clearing out inventories by cutting production, that's exactly what corporate japan is doing, so they're actually building a base for production increases in the new financial year," he said.

"We know that business expenditure for the new financial year is going to be increasing. The Japanese are a bit like clockwork, you know? clean out the stuff while the old financial year which ends march 31st is there. The key issue is not to lose track of whats going on in the forward indicators," he said. "when you look at machinery orders data for example, when you look at bank credit data, what do you see,you see the forward leading indicators, you actually see a recovery that's going to be very strong."

Manufacturers forecast a 2.0 percent decline in output for March, METI said, better than their previous forecast for a 3.2 percent decline. For April, they forecast a 3.6 percent increase.

-- Reuters contributed to this report