Japan’s industrial production unexpectedly fell in June, adding to evidence that the world’s third-largest economy is losing steam as global demand weakens.

Production fell 0.1 percent in June from May, when it fell 3.4 percent, the Trade Ministry said in Tokyo Monday. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent increase.

Europe’s debt crisis and the yen’s strength against the dollar and the euro are threatening a recovery that has been supported by government spending on earthquake reconstruction and incentives to purchase fuel-efficient cars. The yen rose more than 6 percent against the dollar since mid-March, hurting profits of exporters such as Canon Inc. and Nintendo Co.

“Since the global economy is slowing and the government’s subsidy program is nearing an end, the downside risks to industrial production aren’t low,” Jun Kawakami, a market economist at Mizuho Securities Co. in Tokyo, said before the report. 

Government reports last week showed that consumer prices unexpectedly fell and retail sales rose less than economists forecast in June.

Turmoil in Europe and signs of a global slowdown have bolstered the Japanese currency’s appeal as a haven. Japanese Finance Minister Jun Azumi reiterated last week that he is ready to take action against abrupt and speculative moves in the currency market.

A stronger yen erodes the value of Japanese companies’ profits earned overseas as well as hurting their international competitiveness. 

Canon, the world’s largest camera maker, last week cut its full-year profit forecast because of a stronger yen and expectations for weaker growth in the U.S., Europe and China.

Nintendo, the world’s largest maker of video-game machines, said last week that it posted its first loss in three quarters as the stronger yen eroded overseas earnings and its 3DS handheld player remained unprofitable.

While government subsidies for purchases of fuel-efficient cars have bolstered consumer spending and production, those gains may fade in the coming months. Mizuho’s Kawakami said he sees the program expiring by mid-August.

Japan’s economic growth probably slowed to an annual pace of 1.6 percent in the three months ended June 30 from a 4.7 percent expansion in the first quarter, according to the median forecast of economists surveyed by Bloomberg News. (Bloomberg)