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 ultra-loose 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 Governor Kazuo Ueda's efforts to wean the economy off the massive monetary stimulus of the past decade.

"What's happening in China is worrying and could deal a huge blow to Japan's economy," said one of the sources, who spoke on condition of anonymity due to the sensitivity of the matter.

"A downturn in China may diminish the chance of Japan achieving sustained wage growth," which is a crucial condition for phasing out monetary stimulus, another source said.

In a sign of growing pessimism over China, the government also said its monthly economic report for August that "concern over China's outlook" was among risks to Japan's recovery.

"China is over," a senior Japanese government official told Reuters on condition of anonymity because of sensitivity of the issue. "I think China will never return to 5% growth."

Having taken steps in July to make its ultra-loose policy sustainable, the BOJ is widely expected to keep monetary settings unchanged at its September 21-22 meeting.