Japanese industrial production probably grew at the slowest pace in more than a year last quarter, adding pressure on the government to extend consumer incentives as export growth cools.

Factory output rose 0.2 percent in June from May, according to the median estimate of 26 economists surveyed by Bloomberg News ahead of a Trade Ministry report to be released in Tokyo tomorrow. That would cap the smallest quarterly gain since production fell in the first three months of 2009.

Following through with government plans to end subsidies for purchases of energy-efficient vehicles in September may deepen a manufacturing slowdown that is under way as growth weakens in Japan’s biggest markets. Economic Minister Satoshi Arai and Trade Minister Masayuki Naoshima last week said the government hasn’t decided whether to extend the enticements.

“Japan’s production has maintained a surprisingly robust expansion up to now and its deceleration is unavoidable,” said Kenji Yumoto, director at the Japan Research Institute in Tokyo. “Extending the car-purchase incentives could be an option.”

Companies surveyed by the Trade Ministry last month said they planned to expand output by 0.4 percent in June. Should that be realized, production for the quarter would increase 2 percent, the slowest pace since the first quarter of 2009.

Automakers are already preparing to scale back in anticipation of an end to the stimulus program.

Production Cuts

Nissan Motor Co. plans to cut production in Japan by about 20 percent in October and subsequent months from September’s planned level, company spokesman Mitsuru Yonekawa said yesterday. Toyota Motor Corp. will also pare output by 20 percent in October, the Yomiuri newspaper reported on July 21.

A government report today showed retail sales improved in June after tumbling the previous month. Spending advanced 0.4 percent on a monthly basis, after a 2 percent slide in May that was the biggest drop since 2005.

Bank of Japan board member Hidetoshi Kamezaki said yesterday that household spending is likely to weaken once the incentives to buy cars ends and a separate program to spur purchases of home appliances finishes at the end of the year.

“A recoil of consumption of durable goods is expected,” he said in a speech in Sapporo, northern Japan. He said the recovery may slow in the fourth quarter. Household spending makes up more than half of the world’s second-largest economy.

Tax Incentives

The continuation of separate tax cuts for buying energy- efficient vehicles, measures that are scheduled to last until 2012, make it unlikely that the government will extend the car subsidy program, said economist Mika Ikeda.

“Chances are that the government will let the subsidies expire as scheduled,” said Ikeda, an economist at Nomura Securities Co. in Tokyo. “There will probably be last-minute buying of cars” before then, she said.

The Nikkei 225 Stock Average has lost 11 percent over the past three months on concern that Japan’s economic recovery will lose momentum. Exports, the main engine of the country’s rebound from its worst postwar recession, are already slowing. The gauge was down 0.5 percent at the 11 a.m. lunch break in Tokyo today.

Shipments abroad advanced 27.7 percent in June from a year earlier, the weakest expansion this year, as demand from China and Europe waned, a government report showed this week.

The volume of shipments fell 1.2 percent in June, the second monthly decline, according to data compiled by the Cabinet Office.

Growth is moderating in the U.S. and China, Japan’s biggest markets. China’s expansion cooled to 10.3 percent in the second quarter after authorities tightened policy to avoid overheating. In the U.S., growth eased to an annual 2.5 percent pace in the same period, according to the median estimate of 80 economists surveyed ahead of figures to be released this week.

Japan’s gross domestic product rose at an annual 1.9 percent rate in the second quarter, slowing from 5 percent in the first three months of 2010, the median estimate of 14 economists shows.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.