By APD writer Alice

Japan's industrial output shrank more than expected in August in the latest warning that the economy and its manufacturers are facing intensifying pressure amid a bitter China-US trade war.

Retail sales, however, expanded at a faster-than-expected pace, signaling strength in private spending ahead of October's nationwide sales tax increase.

Industrial output fell 1.2% in August, government data showed, dropping at a faster pace than a median market forecast for a 0.5% decline and almost completely reversing July's 1.3% increase.

Output was weighed down by reduced production of iron and steel products, factory production equipment and cars, offsetting a gain in electronic parts and chemicals, the data showed.

Manufacturers surveyed by the trade ministry expect output to rise by 1.9% in September but fall 0.5% in October.

The world's third-largest economy has so far avoided buckling under a slowdown in overseas demand, growing for the third straight quarter in April-June, largely thanks to robust household consumption and public works spending.

The latest data showed Japan's exports slipped for a ninth month in August as demand from China and other Asian trading partners falls.

Japanese Prime Minister Shinzo Abe, however, has brought Japanese exporters some relief after signing a limited trade deal with US President Donald Trump to cut tariffs on US farm goods, Japanese machine tools and other products.

Although the agreement does not cover autos, Abe said he had received assurances from Trump that Washington would not impose previously threatened Section 232 national security tariffs on Japanese car imports.

Still, even as the threat of higher US tariffs on Japanese car imports was staved off, policymakers remain worried about the darkening outlook for the economy in light of frail external demand and global recession risks.

This month, the Bank of Japan signaled the chance of expanding stimulus as early as its October policy meeting by stepping up its rhetoric against threats to the economy from heightened overseas risks.

Separate data on September 30 showed domestic demand might be stronger than thought, as retail sales climbed 2% in August from a year earlier, reflecting robust spending ahead of a sales tax increase to 10% from 8% on October 1. The reading was better than a median estimate for a 0.9% gain.

(ASIA PACIFIC DAILY)