Japan's industrial production dropped during October-December, but will rebound in the current quarter, the Bank of Japan (BoJ) said in its monthly report published on Wednesday.

Production likely fell in October-December due to the expiry of subsidies for energy efficient cars and inventory adjustments for information-related goods ... But it is likely to rise back in January-March as a pullback in car demand gradually abates, the BoJ report said.

The central bank repeated its earlier stance that the economy will b ounce back into health after going through a negative phase, and maintained that exports remained 'somewhat weak.'

However, it also added that exports will increase moderately again, reflecting the improvement in overseas economic conditions.

Meanwhile, a survey showed on Wednesday that conditions faced by smaller Japanese businesses appear to have stopped deteriorating but remain more difficult than the recent peaks seen in mid-2010.

The Shoko Chukin Bank survey's index ticked down from 45.9 in December to 45.8 in January, signaling persistent weakness in small and medium-sized enterprises (SMEs).

In principle, a sub-50 reading means that pessimists still outnumber optimists, but the average since 1985 is only 46.9. Life always seems harder to small businesses, said Capital Economics analysts Julian Jessop and Vishnu Varathan in a note.

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