Disappointing data released on Wednesday by the Bank of Japan has fuelled fears that the country is seeing an economic slowdown on the back of the recent troubles in China.

The bank said in its monthly report that Japanese factory output will remain flat in the current quarter. Although factory output was originally expected to pick-up in October-December is clouded with uncertainty as shipments to Asia take a hit from falling demand in China.

The bank said in a statement:

“Based on surveys we are conducting on companies, industrial output is expected to move sideways in July-September from the previous quarter. Output is expected to rebound in October-December, although there is strong uncertainty on overseas developments.”

This data furthers concerns that Japan will find it harder than previously anticipated to recover from a shrinking economy in the second quarter.

However, Asian shares were up on Wednesday, following a similarly strong performance from Wall Street.

Japan’s benchmark Nikkei 225 index ended up 0.8% at 18,171.60 and Chinese shares also traded higher, recovering some of the ground lost on Tuesday when the mainland benchmark index lost 3.5%.

The Shanghai Composite was up by 1.9% to 3,062.15, while Hong Kong’s Hang Seng index gained 2.2% to 21,938.13.

However, investors remain cautious ahead of the decision by the US Federal Reserve on Thursday as to whether rates will rise for the first time in nearly ten years.

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