Prime Minister Shinzo Abe at a memorial ceremony to commemorate the 62nd anniversary of the end of the Battle of Okinawa, held at the Peace Memorial Park in Itoman City, Okinawa, on June 23, 2007.

Japan's industrial production unexpectedly fell for a third straight month in May, the longest decline in almost two years, sparking worries that growth is slowing in the world's second-largest economy.

Production dropped an adjusted 0.4 percent from a month earlier, the Trade Ministry said in Tokyo today.

The Minstry said:

• Production decreased, Shipments increased, Inventory and Inventory Ratio decreased.

• According to the Survey of Production Forecast in Manufacturing, Production is expected to increase in June and July.

• Industrial Production is showing a tendency to remain flat.

The fall may prompt the Bank of Japan to keep its key rate at 0.5% which will maintain the yen at a low level and encourage the so-called "carry trade" where investors sell yen and purchase high yield currencies such as the New Zealand dollar where the base interest rate is 8%.

Manufacturers expect production to rise 1.9 percent in June from a month earlier and 1.7 percent in July, the Trade Ministry said.

Despite expectations regarding June, production for the second quarter will only increase 0.3 percent, the Ministry said. May's monthly fall brought the production index to 107.0, the lowest level in eight months.