The government on Monday downgraded its assessment of the economy for August, saying it is "worsening" after being hit by sluggish production and exports due partly to lingering U.S.-China trade tensions.
It was the first time in four months officials used the word "worsening."
The downgrade comes as concerns grow over the outlook for the world's third-largest economy as the Oct. 1 consumption tax hike could dampen private consumption.
The Cabinet Office said its coincident index of business conditions for the reporting month fell 0.4 point from the previous month to 99.3 against the 2015 base of 100.
After using the phrase "worsening" — the most pessimistic expression adopted by the government — for March and April, the office upgraded the view, saying downside movements had come to a halt in May and the two following months.
The latest downgrade of the evaluation followed weak industrial output data for August — an element in the coincident index based on indicators sensitive to the economic condition.
As use of the description "worsening" indicates Japan is highly likely to have fallen into recession, the assessment appears to contradict the government's official view that the economy has been recovering at a moderate pace, supported by solid domestic demand, as shown by its monthly economic report.
Asked about the diverging views, a government official who briefed reporters said the evaluation is made automatically based on the movements of the coincident index consisting of indicators reflecting the present economic condition, while the monthly report is a broader evaluation of various economic activities and trends.
The consumption tax rate was raised to 10 percent from 8 percent to help pay for swelling social security costs amid the rapid graying of the country's population.