How bright is Japan's economy?

The poor figures overshadowed positive jobs data, dented the yen and soured the mood in the stock market.

According to the Ministry of Economy, Trade and Industry, output rose 0.5% last month compared with 3.5% in April.

While expressing disappointment at the slump, many observers said that they expected growth to continue, albeit at a less frantic pace.

Boom time?

Japan's economy expanded at an annualised rate of 6.1% in the first three months of this year, compared with 3.9% in the US.

This is the first time the jobless rate has been on a declining trend since the bursting of the economic bubble Hiroshi Yokotani, Tokio Marine Asset Management

"It looks like the momentum in production is fading after the steep rise that we had been seeing for some time," said Takehiro Sato, an economist at Morgan Stanley. "But this doesn't necessarily paint a bleak picture going forward."

Japan has been benefiting from strong economic growth in Asia, and particularly in China.

A Finance Ministry report showed last week that the value of Japan's exports exceeded that of its imports by 934 billion yen ($8.6bn) in May, a 35% increase on the year.

That foreign demand has helped to drive growth at a time when Japan's domestic demand is stubbornly subdued.

Bright spot

The best jobless figures in almost 4 years, however, helped to buoy optimism on Tuesday that consumers will pick up their spending in coming months.

According to the Home Affairs Ministry, the unemployment rate fell to 4.6% in May from 4.7% the previous month.

"The job data was very strong," said Hiroshi Yokotani, an economist at Tokio Marine Asset Management.