TOKYO (Reuters) – Japan’s economy grew at a slower pace than initially estimated in the second quarter as the U.S.-China trade war prompted a downward revision of business spending, intensifying calls for the central bank to deepen stimulus this month.

Weakness in the global economy and trade protectionism have emerged as risks to growth and added some pressure for the Bank of Japan (BOJ) to expand stimulus when it meets next week.

The economy grew an annualized 1.3% in April-June, weaker than the preliminary reading for 1.8% annualized growth, revised Cabinet Office data showed Monday.

The reading was in line with the economists’ median forecast for a 1.3% gain.

The annualized growth rate translates into a quarter-on-quarter expansion of 0.3% from January-March, compared with a preliminary reading for a 0.4% gain.

“There’s a possibility growth will turn negative in the October-December quarter,” said Izuru Kato, chief economist at Totan Research.

“If worries about such negative growth deepen (in the coming months), the Bank of Japan could consider lowering interest rates further into negative territory.”

Capital spending rose just 0.2% from the previous quarter, much lower than a preliminary 1.5% rise and the median forecast for a 0.7% increase.

The capex downgrade was due to government statisticians including a demand-side survey of capex in the revised GDP data, which is not factored in the preliminary figures and showed weakness in the sector.

Stefan Angrick, senior economists at Oxford Economics, said manufacturers cut back on spending in the quarter amid a re-escalation in U.S.-China trade frictions.

“While investment by non-manufacturers, particularly software-related, maintained robust growth, it was not enough to completely offset the contraction in spending by manufacturers,” Angrick said in a note.

Private consumption, which accounts for some 60% of gross domestic product, advanced 0.6% from the previous three months, matching the preliminary reading.

Net exports – or exports minus imports – subtracted 0.3 percentage point from revised GDP growth, signaling the economy is feeling the pain from the global growth slowdown.

BOJ PRESSURE

The outlook for the world’s third-largest economy remains clouded as risks from declining manufacturing overseas and at home hit exports.

Analysts have also warned of a possible drop in domestic consumption after Japan raises its sales tax to 10% next month, which could hit one of the economy’s few growth drivers.

Amid the risks to growth, BOJ Governor Haruhiko Kuroda has kept the door ajar for cutting interest rates further into negative territory, saying last week such move is among the bank’s policy options.

Speculation is growing that the BOJ could ease policy as early as this month to prevent the yen from spiking, an increasingly likely prospect if the U.S. Federal Reserve and the European Central Bank unveil new easing measures.

Growth is expected to hold up in the current quarter partly due to consumer front-loading their purchases ahead of next month’s tax rise, said Totan Research’s Kato.

“But it’s unlikely the pent-up demand in the July-September quarter will be as strong as ahead of the previous consumption tax hike in April 2014,” he said.

Consumption has been one of the few bright spots for the economy, which has expanded for three straight quarters, although the pace of growth has slowed.

Household spending rose for an eighth straight month in July, marking the longest run of expansion since comparable data became available in 2000.

But that may not be enough to shield Japan’s service sector from a slump in exports, sagging business sentiment and a contraction in manufacturing.

Japan’s exports slipped for an eighth month in July, dragged down by China-bound shipments of car parts and semiconductor production equipment, while manufacturers’ confidence turned negative for the first time since April 2013.

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