Crude steel output is estimated at 25.69 million tonnes versus 25.70 million tonnes a year earlier, the ministry said.

Output has fallen year on year for five quarters.

Output in the current quarter is expected to rise 0.8% from the previous quarter.

Demand for steel products, including those for exports, is forecast to fall 2.9% year on year to 22.92 million tonnes, the ministry said, citing an industry survey.

Exports, which typically account for about 40% of Japanese steel production, are predicted to drop 1.4%.

"Escalating trade tensions and uncertainty over the outlook for the Chinese economy are expected to keep weighing on exports and production," Noriyuki Kuroda, director of metal industries division at METI, told a news conference.

"Weaker demand after consumers' last-minute purchases before the sales tax hike may also hurt manufacturers," he said, after Japan last Tuesday rolled out a twice-delayed increase in the sales tax to 10% from 8%.

Higher public spending on infrastructure to guard against big disasters might mitigate some negative impact, he said.

Kuroda warned output might fall short of the latest forecast as it does not reflect the recent shutdown of some steelmaking plants.

The higher sales tax is seen as critical for bolstering the country's finances but that could tip the economy into recession by dampening consumer sentiment.

Rising steel exports to Asia from Russia and India are also putting pressure on steel prices in the region, hurting exports from Japan, Shinichi Nakamura, executive vice president of Nippon Steel, told reporters at a separate news conference.

"Cheap steel products coming from India and Russia to Asia are disturbing factor for the market," he said.

Nippon Steel said last week one of two steelmaking plants at its Kimitsu Steel Works would be shut until the end of December to repair a chimney that collapsed in a typhoon last month.

Two more steelmaking plants in the Nippon Steel group have also suspended operations due to fire, though one of them is scheduled to restart by Oct. 10, a company spokesman said.

(Reporting by Yuka Obayashi; editing by Jason Neely)

By Yuka Obayashi