Japan's factory output contracted a worse-than-expected 0.6 percent on-month in July, official data showed on Monday, owing to lacklustre demand at home and as a slowdown in China weighs on exports.

The reading published by the industry ministry was weaker than the median forecast for a modest 0.1 percent rise in a survey of economists by Bloomberg News.

In June, industrial production rose 1.1 percent from May.

Production cutbacks in the electrical components and transport equipment industries led the decline in manufacturing, according to the government, as firms tried to cut down on an inventory buildup.

"Production is sluggish because private consumption and exports remain weak," Toru Suehiro, an economist at Mizuho Securities, told Bloomberg News.

"Concern about China and emerging economies is posing a risk to output."

Japan's overseas shipments have slowed, raising concerns about the fragile recovery in the world's number three economy as demand falls in neighbouring giant China.

China-bound shipments were off 1.3 percent in July from 12 months earlier in volume terms, outstripping a 0.4 percent fall to the rest of Asia.