Japan's industrial production fell 0.3 percent in March, coming in well above the 2.3 percent decline that had been forecast in a Reuters poll.
"The decline in industrial production in March was much less pronounced than expected and suggests that gross domestic product (GDP) growth remained solid last quarter," Marcel Thieliant, a Japan economist at Capital Economics, said in a note Thursday. "As such, it would provide an excuse for the Bank of Japan to leave policy settings unchanged at its meeting later today."
While electric machinery and petroleum product production both fell, the overall figure was supported by growth in transport equipment and information and communication technology equipment, likely due to export shipments, Credit Suisse noted.
For the January-to-March quarter, industrial output rose 1.7 percent on-quarter. That would be around double the 0.8 percent increase in the fourth quarter, Thieliant noted.
"We tend to think industrial production in the first quarter was held up by the firmer exports shipment to the U.S., especially for auto-related products," Credit Suisse said in a note Thursday. But it added, "The leading indicators like US-ISM survey suggest that global production cycle will lose momentum around this spring, which implies Japanese industrial production may also reach its local peak in the first half."
Manufacturers expect April's output will rise 2.1 percent on-month, compared with a previous forecast for 3.6 percent, according to data from Ministry of Economy, Trade and Industry (METI).
"Companies tend to overstate the future strength of output, so the actual results will likely be weaker. Indeed, the flash estimate of the manufacturing PMI fell to a one-year low this month, consistent with stagnant industrial production," Thieliant said.
After the release of the data, the stock market was lower, with the Nikkei opening down 1.1 percent. The yen strengthened slightly, with the U.S. dollar fetching around 118.93 yen, compared with around 119 yen before the data after an overnight slip to as low as 118.60 yen.
The country's economy continues to waver.
In April of 2013, the Bank of Japan launched a massive quantitative easing program, which was later expanded to purchase 80 trillion yen worth of assets a year, as a part of Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe to jump start the economy.
But Abenomics has had a mixed track record.
The economy got clobbered when consumers stopped spending following a rise in the nation-wide consumption tax to 8 percent that took effect last April, forcing the government to postpone a second sales tax initially due this October.
Japan's retail sales for March, released earlier this week, plunged 9.7 percent on-year, well below expectations, after last year's sales were front-loaded as shoppers splurged ahead of a sales-tax increase.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter