Japan downgraded its official view of the economy for the sixth time this year in a monthly report today.
The report said sluggish exports were cutting into corporate production and capital spending.
It also painted a bleak picture of the future, citing the slowing global economy and a build-up in companies' inventories as areas of concern.
It lowered the view on all components, from production, exports and labour conditions to housing investment and capital spending.
The downgrade was the latest reminder to Prime Minister Mr Junichiro Koizumi of the tough task ahead as he tries to press ahead with structural reforms that are expected to cause more short-term pain for the world's second-biggest economy.
Most economists agree that April-June gross domestic product will show a contraction for the second straight quarter when it is released on September 7th, meeting a common definition of recession.
Exports and industrial production have fallen substantially, and business investment is dropping as well, the report said.