Policymakers in Tokyo believe China's deepening economic woes could hit Japan's fragile recovery, especially if Beijing fails to shore up demand with meaningful stimulus, potentially delaying an exit from ultraloose monetary policy.
China's downturn would leave Japan's export-reliant economy with little external support as aggressive Federal Reserve interest rate hikes cool growth in the United States, another key driver of global activity.
The risks from China will be among key topics of debate at the Bank of Japan's September policy meeting, say five sources familiar with the bank's thinking, and raise fresh questions about Gov. Kazuo Ueda's efforts to wean the economy off the massive monetary stimulus of the past decade.