Amid rising trade tensions between the US and China, Japan’s factory output staged a bit of a comeback in July, climbing 1.3% higher after the 3.3% decline seen in June. The industrial output also beat expectations, which were for a 0.3% rise.

Higher production of cars and chemicals helped boost the overall industrial output in Japan for the month of July. Expectations are for the rise to continue into the next month, with the trade ministry forecasting a 1.3% rise in August as well. However, this figure could decline 1.6% in September over the prolonged US-China trade war.

In more positive news for the Japanese economy, jobless rate declined to 2.2% during July from 2.3% in June. In addition, core CPI climbed 0.7% higher YoY in August in Tokyo, but this was the lowest rate of growth seen in over a year.

Japan’s export-oriented economy has continued to grow, with Q2 economic growth registering a 1.8% risk. However, this rise was driven by strong domestic demand and higher capital expenditure. China is one of Japan’s most important trading partners and the trade war has dampened exports significantly.

However, strong domestic demand may not be sustainable and Japan’s economic growth could slow down in the coming months. According to recently released data, retail sales dipped 2.0% lower YoY in July 2019, while expectations were for a 0.8% decline.