Japan's government has downgraded its main economic assessment for the second month in a row, acknowledging for the first time the world's second-biggest economy has slipped into a deflationary state.
The gloomy report came before a Bank of Japan board meeting on Monday, which analysts and reports say will decide to return to a zero interest rate policy controversially abandoned last year.
'Economic recovery appears to be pausing,' the Cabinet Office said in a monthly report submitted to Prime Minister Yoshiro Mori.
The term 'pausing' was last used in January 1998, before the economy eventually sank into recession. It also marked a rare, second straight monthly downgrade.
The report said exports had faltered in line with the slowdown in the US economy. The assessment also declared the economy was now in a deflationary trend.
The price falls are discouraging consumers from spending and hurting corporate earnings. Core consumer prices dropped 0.5% in January in their 16th straight fall.
