TOKYO (Reuters) - Japan’s exports slipped for an eighth month in July, while manufacturers’ confidence turned negative for the first time in over six years as China-bound sales slumped again in a fresh sign the Sino-U.S. trade war could tip the economy into recession.

FILE PHOTO: A man in a bicycle drives past containers at an industrial port in Tokyo, Japan, May 22, 2019. REUTERS/Kim Kyung-Hoon/File Photo

The gloomy data underscored the challenge for Japanese policymakers worried that prolonged weakness in external demand will drive a sharp economic downturn at home.

Exports in July fell 1.6% from a year earlier, Ministry of Finance data showed on Monday, dragged down by China-bound shipments of car parts and semiconductor production equipment. That compared with a 2.2% decrease expected by economists.

It marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016. Yet there was some glimmer of hope for shippers, as export volume rose 1.5% in July year-on-year - the first positive reading in nine months.

Separately, the Reuters Tankan survey showed Japanese manufacturers’ business confidence turned negative for the first time since April 2013 in August.

“My impression is that the year-on-year rise in the export volume was slightly stronger than expected. That’s a positive as falling exports is the biggest issue faced by the Japanese economy,” said Taro Saito, executive research fellow at NLI Research Institute.

“But it’ll be hard for exports to recover going forward, since there’s no solution in sight for the U.S.-China trade war, and the global economy and manufacturing remain weak.”

Indeed, the negative reading underlined the darkening outlook for the Japanese economy even as the most recent quarter showed a welcome improvement. Gross domestic product grew faster than expected in April-June to mark the third straight quarter of expansion, as robust domestic consumption and business investment offset the negative contribution from external demand.

Though service-sector activity remains firm in Japan, simmering international trade tensions have caused manufacturers’ sentiment to worsen.

Analysts at Capital Economics said they expect imports will continue to outpace exports as consumers are seen bringing forward demand ahead of a planned sales tax hike in October.

“The upshot is that net trade may remain a drag on growth in the third quarter,” the analysts wrote in a note to clients.

RECESSION FEAR

Anxiety about a global slump rose to fever pitch recently after an inversion in the U.S. Treasury yield curve implied a growing risk of a recession there, and data showed Germany’s economy was in contraction and China’s was worsening.

Exports to China, Japan’s biggest trading partner, shrank 9.3% year-on-year in July, down for a fifth month. The contraction was led by sizable declines of 31.5% in semiconductor production equipment, 35% in car parts and 19% in electronics parts, the data showed.

Manufacturers’ exports to China of semiconductors and electronics parts slumped as a rush of demand ahead of a U.S. ban on federal purchases of telecommunication equipment from Huawei Technologies Co Ltd wound down, analysts said.

Shipments to Asia, which account for more than half of Japan’s overall exports, declined 8.3% in the year to July.

Export-reliant economies such as Japan have been hit hard by the Sino-U.S. tariff row, which has already upended supply chains and undermined global trade, investment and corporate earnings.

Japan has also been embroiled in an intensifying trade row with South Korea, further threatening to hurt the outlook for its manufacturers.

Japan’s exports to the United States rose 8.4% in the year to July, driven by a jump in semiconductor production equipment, construction and mining machinery and airplanes.

It marked the tenth straight month of exports growth to the United States, following a 4.9% increase in June, which could raise the ire of U.S. President Donald Trump who has criticized Japan and other trading partners for running what he sees as unfair trade imbalances with his country.

The two countries are set to hold ministerial-level trade talks in Washington this week, with eyes on an early trade deal including U.S. beef exports and Japan’s auto exports.

Imports from the United States climbed 3.5% in July, sending Japan’s trade surplus with the world’s biggest economy up 15.6% from a year earlier to 579.4 billion yen ($5.45 billion), the data showed.