The Bank of Japan (BOJ) lowered its economic assessment for the sixth straight month in its November report published today, citing weaker consumption.
The assessment reinforces the view that Japan is in its fourth recession in a decade, with a downturn in exports since the start of the year causing a vicious chain reaction through output, corporate profit, capital spending, employment, personal income and now consumption.
The central bank said a global economic slowdown that had been worsened by the September 11th attacks in the United States meant the outlook for Japan remained uncertain.
Japan's jobless rate hit 5.3 per cent in September, raising concerns about whether the economy could withstand Prime Minister Mr Junichiro Koizumi's much-needed structural reforms, which include getting rid of the bad-loan mountain crippling the banking sector.
Personal consumption, which accounts for nearly 60 per cent of the nation's gross domestic product, had been quite resilient until recently. But the September 11th attacks hit the few bright spots such as overseas travel and sales of durable goods like cars, the BOJ report said.
Japan's GDP for the July-September quarter, due out early next month, is widely expected to confirm that the economy has contracted for a second consecutive quarter - meeting a common definition of recession.
Despite the bleak economic picture, the BOJ has been unable to do much to address heightening concerns.
Interest rates are already near zero and private sector bank lending has been falling for 46 months despite the central bank's attempt to force feed the banking system with liquidity through its money market operations.
The BOJ left its monetary policy unchanged at its board meeting last week. It had eased in August and again in September, and its top officials say monetary policy cannot be effective until banks' bad loan problems are resolved.