REFILE-UPDATE 1-Japan June factory output dips, rebound seen
* Industrial output +0.1 pct in June vs forecast +1.5 pct
* Companies expect output to rise in July, but drop in Aug
* Domestic demand drives economy, global demand dims outlook
By Kaori Kaneko
TOKYO, July 30 (Reuters) - Japan's factory output unexpectedly dipped in June, down for a third straight month, adding to concerns that slackening global demand is taking its toll on the world's third largest economy.
The 0.1 percent drop in industrial output compared with economists' median forecast of a 1.5 percent increase, providing a source of concern for policymakers anxious about a slowdown in China and other emerging market economies.
Manufacturers surveyed by the government raised their forecasts for July to a 4.5 percent rise compared with the previous forecast of 2.4 percent, but saw production dropping off in August again with a 0.6 percent fall.
"Earlier this year, manufacturers front loaded a lot of production due to disruptions from flooding in Thailand last year, but now output is slowing," said Hiroaki Muto, Senior Economist at Sumitomo Mitsui Asset Management Co.
"We will have to rely on the economic impact from reconstruction spending, because external demand is weak. Japan's economy will continue to grow, but not at a fast pace."
Monday's data and the trade ministry assessment that output has stagnated cast doubt about the Bank of Japan's view that the economy was poised for moderate growth in the coming months, largely supported by domestic demand driven by rebuilding efforts from last year's massive earthquake and tsunami.
Still, many analysts expect the bank to stand pat on monetary policy for the time being barring a sudden yen spike which would hurt Japan's export-reliant economy.
"If the Federal Reserve announces fresh stimulus measures this week and pushes up the yen against the dollar, that could put market pressure on the Bank of Japan to act too this month. Otherwise, the BOJ is highly likely to stand pat," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Highlighting weakening overseas demand, trade data last week showed Japan's exports logged the first annual decline in four months in June as Europe, China and other emerging markets slow.
Japan's economy is expected to outperform most other developed nations this year with a boost from solid domestic demand, but analysts have slashed forecasts for factory output as the global slowdown becomes more pronounced.
The world's third largest economy is set to grow 2.2 percent in the year to next March, according to economists polled by Reuters, a little slower than the 2.3 percent growth seen in a similar survey last month.
The BOJ set a 1 percent inflation target and eased policy via an increase in asset purchases in February, and followed up with more easing in April to show its resolve to beat deflation. The central bank next meets Aug. 8-9.
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