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Japan output seen flat in third quarter on China slowdown - BOJ

A man works around a metal procession machine at a factory in Urayasu, east of Tokyo October 9, 2014. REUTERS/Issei Kato

TOKYO (Reuters) - Japanese factory output will remain flat in the current quarter and an expected pick-up in October-December is clouded with uncertainty as shipments to Asia take a hit from China's slowdown, the Bank of Japan said on Wednesday.

Slumping growth in emerging economies is hurting Japanese machinery makers, while electronic parts makers are suffering from weak exports of smartphone parts to China, the central bank said in a monthly report for September.

"Based on surveys we are conducting on companies, industrial output is expected to move sideways in July-September from the previous quarter," it said.

"Output is expected to rebound in October-December, although there is strong uncertainty on overseas developments."

The cautious assessment underlines a waning conviction among central bank policymakers that Japan's economy will make a solid rebound in July-September after shrinking in the second quarter.

Some economists see a chance of another contraction that would put the country into its second recession in as many years.

Contrary to the gloomy view on exports and output, the BOJ maintained its optimism that capital expenditure and household spending are holding up and set to increase steadily.

The BOJ maintained its massive monetary stimulus at a policy meeting on Tuesday but cut its assessment on exports and output, nodding to a slew of recent weak data that cast doubt on the strength of Japan's economic recovery.

The monthly report is usually issued a day after the policy review to offer a more thorough analysis on each components of the economy.

Factory output unexpectedly fell in July and manufacturers see further declines in September after a modest rise in August, data showed last month, as companies struggled with high inventory on weak demand in China.

BOJ officials argue that the weakness in exports and output will be temporary, and that there was no need to expand monetary stimulus unless overseas headwinds directly hurt domestic consumption and business confidence.

(Reporting by Leika Kihara; Editing by Kim Coghill)