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The economy is deteriorating and may be slipping into recession due to sluggish personal consumption and business investment, the government said Thursday, downgrading its assessment for the fifth straight month.

“The possibility the economy has entered a recession phase is substantially high,” a Cabinet Office economist said in a briefing on the closely watched June economic report.

The Cabinet Office also dropped the phrase “moving toward a self-sustained recovery” from the report’s overall assessment for the first time since March 2000, while saying the economy “is deteriorating,” a step back from last month’s report, which described it as “further weakening.”

It also refrained this month from partly attributing Japan’s overall weakness to the U.S. economic slowdown, because “internal factors” are more responsible for the poor performance, the economist said.

It is the first time for the government to downgrade its view for five successive months since the half-year between September 1997 and February 1998, when the economy was in recession.

The June report notes four new factors — weak personal consumption; business investment that has leveled off; a continued decline in industrial output; and a decrease in imports as well as exports.

While the government continues to regard personal consumption as broadly flat, the report shows that it declined in March and April.

The corporate sector — which had led the economy — lost the most steam, with growth in profits slowing and capital investment flattening, according to the report.

In addition, production is expected to have dropped further in the April-June quarter, it says.

The report also says the rise in inventories and decline in corporate capital investment are matters for concern in the near future.

Whether the pileup of inventories centering on semiconductors will further discourage investment will have to be closely monitored, the economist said.

Addressing declining semiconductor output and exports as the month’s topic, the report analyzes the latest downside from last summer’s peak as much larger in extent than previous ups and downs in 1995-1996 and 1998.

No stimulus for now

The government is not considering any economic stimulus measures for now despite the sluggish economy, Chief Cabinet Secretary Yasuo Fukuda said Thursday .

“Personal consumption remains sluggish, and I think the current state is undesirable,” Fukuda told a regular news conference.

He made the remark when asked whether the government is thinking of taking any steps following a contraction of economic growth in the January-March quarter and recent falls in stock prices.

“I am not currently considering taking any economic stimulus measures,” Fukuda said.

On Monday, the Cabinet Office said gross domestic product contracted a real 0.2 percent in the January-March quarter from the previous quarter for an annualized contraction of 0.8 percent. The figure means Japan achieved only 0.9 percent growth in fiscal 2000, falling short of the government’s target of 1.2 percent growth.

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