The Bank of Japan has downgraded its assessment of the Japanese economy for the third straight month and hinted strongly that a recession the country's fourth in a decade was unavoidable.

The downgrade comes the day after the bank eased monetary policy in an attempt to offset the effects of the economic downturn and to stem deflation by boosting liquidity in the banking system.

The latest report highlights concerns that the economy is contracting rapidly before the implementation of reforms that are expected to slow it further by increasing bankruptcies and unemployment.

It is feared that the combination of the economy's natural downward movement and the tough medicine being suggested by Mr Junichiro Koizumi, the prime minister, could send Japan beyond recession and into a depression. Economic activities are intensifying further, reflecting a substantial decline in exports and production, the central bank said in its latest monthly report.

It seems inevitable that adjustments in economic activities, originating from a decrease in exports, will continue for the time being.