Japan's government has downgraded its view of the economy for the third month in a row in October as worries about Europe's debt crisis and China's slowdown intensified.
This added pressure on the Japanese central bank to offer further stimulus to support growth.
It was the longest streak of downgrades since five consecutive months of cuts made just after the collapse of Lehman Brothers in 2008.
The cut underscored Tokyo's growing alarm that the prolonged overseas slowdown may push Japan into recession.
Economics Minister Seiji Maehara said that while it was too early to judge whether Japan may slip into recession, the economy's trend was weak as weak global demand hurt exports.
"A further slowdown in global growth and volatility in financial markets may hurt Japan's economy, which are risks we must be vigilant to," Maehara told a news conference today.
The downgrade in assessment followed the Bank of Japan's warning last week that economic activity was levelling off and may not recover until well into next year.
"The economic recovery has had a weak tone recently due to a slowdown in the global economy, although some steadiness is still seen," the government said in its latest monthly report released today.
Slackening overseas demand and weak exports also prompted the government to lower its assessment on factory output and corporate sentiment. Japan's economy has so far outperformed most of its peers in the Group of Seven helped by spending on reconstruction from last year's earthquake and tsunami. But weak external demand and a strong yen have led analysts to project growth will likely stall for the rest of this year.
The International Monetary Fund also trimmed its growth forecasts for Japan, as factory output fell to a 15-month low in August on sagging sales to top export market China and business sentiment worsened in the three months to September.
Adding to headaches for policymakers is the impact of a territorial dispute with China, which has sparked anti-Japan protests in China and calls for boycotts of Japanese goods.
The government's bleak assessment adds pressure on the Bank of Japan for action ahead of its rate review on October 30. At the meeting, the central bank is set to cut its long-term growth forecasts and admit that it will take take several more years for Japan to achieve its 1% inflation target, and bring to an end a long-running deflationary era.
The economics minister, a vocal advocate of more aggressive monetary easing, kept up calls for further BOJ action, saying that the central bank has a responsibility to achieve its price target at an early date.
