Japanese factory output rose less than forecast in July and companies surveyed by the government said they expect production to dip next month.
That is because of the surging value of the yen against currencies which makes Japanese exports more expensive as well as slowing global economic growth.
The July figures showed output of cars and telecoms equipment rose while electronics and chemicals fell.
Industrial output was up by 0.6 percent from the previous month according to data from the Ministry of Economy, Trade and Industry. Economists had forecast a 1.5 percent increase. Output rose 3.8 percent in June.
Manufacturers surveyed by the ministry ramped up their output growth forecast for August to 2.8 percent from 2.0 percent, but predict a 2.4 percent decline in September.
“The expected drop in September is bigger than anticipated,” said Mari Iwashita, chief market economist at SMBC Nikko Securities. “It is a worrying sign going into the fourth quarter.”
Output has been rebounding from the deep slump caused by the March 11 earthquake and tsunami as companies made progress in mending broken supply chains and factories.
But sluggish growth in the major demand centres of Europe and the United States and a yen close to record highs raise doubts about the strength of the rebound in the months ahead.