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Japan’s industrial production unexpectedly fell in July, sapping a rebound in the economy from a slump last quarter.

Output fell 0.6 percent from June, when it increased 1.1 percent, the trade ministry said on Monday, compared with the median forecast for a 0.1 percent gain in Bloomberg survey.

The world’s third-biggest economy is struggling to recover from a contraction, as slowing growth in China -- Japan’s biggest trading partner -- weighs on exports. Household spending unexpectedly declined and the Bank of Japan’s key inflation gauge slowed to zero for a third time this year, data for July showed last week.

“Production is sluggish because private consumption and exports remain weak," said Toru Suehiro, an economist at Mizuho Securities Co. "Concern about China and emerging economies is posing a risk to output."

The yen held steady after the output data were released and was trading up 0.4 percent against the dollar at 121.28 at 9:13 a.m. in Tokyo. The Topix index of shares slid 1.3 percent.

Electrical Components

Production cutbacks in the electrical components and the transport equipment industries led the decline in manufacturing. Companies trimmed inventories by 0.8 percent in July from the previous month, the first reduction since May.

Bank of Japan Governor Haruhiko Kuroda said in New York last week that weakness in production and exports would pass and that leading indicators point to a pick up in business investment. The government and central bank should boost stimulus if the economy fails to grow again this quarter, Koichi Hamada, an adviser to Prime Minister Shinzo Abe, said last week.

Manufacturers plan to boost production by 2.8 percent in August and then reduce it 1.7 percent in September, according to a trade ministry survey.

Those forecasts point to a 0.7 percent increase in production this quarter, said Marcel Thieliant, an economist at Capital Economics.

"Companies tend to be too optimistic about future production levels," said Thieliant. "The upshot is that the economy should rebound only modestly this quarter."

The government may have to boost fiscal stimulus, Koya Miyamae, an economist at SMBC Nikko Securities Inc., said before the report.

— With assistance by Tomoko Sato

(Updates with economist comment in fourth paragraph.)