TOKYO -- In its gloomiest assessment of Japan's business climate in more than two decades, the government said the economy is stagnating and that it is unclear when growth will resume.
Pessimism in households and corporations has soured consumption and investment, and it is uncertain whether the country is headed toward recovery or recession, a monthly report by the Economic Planning Agency said Friday.
The report was darker than December's study, which said the economy was "stalling." It was the first time the agency had called the economy "stagnant" since January 1975.
Despite the grim wording, the report had little impact on Tokyo stock markets. Traders were waiting to see what stimulus measures the government would come up with to spur the economy.
The benchmark 225-issue Nikkei Stock Average rose 36.76 points, or 0.22 percent, to close at 17,040.06. On Thursday, the average climbed 120.68 points, or 0.7 percent.
Recent stock gains, in fact, provided one of the few bright spots in the Japanese economy, the report said.
"As illustrated by recent movements in stocks, a portion of market sentiment is improving," the agency said. "But severity in household and corporate sentiment is having a negative impact on private consumption and capital investment, and the economy is stagnant."
Akira Furukawa, an EPA research official, said in the agency's parlance, "stagnant" means economic growth is completely flat. In contrast, "stalling" indicates a brief pause amid a general growth trend.
Mr. Furukawa said the wording was changed because it remains unclear whether or when growth will resume.
Japan's once vigorous economy, characterized by high growth rates, has faltered most of this decade following the collapse of the speculative boom of the late 1980s.
Unemployment remains near record highs, while unease has grown over the health of the financial system following a series of high-profile bankruptcies of banks and securities companies late last year.
"I can't deny that if the economy were to continue like it has been recently, it's very possible it would slip into recession," Shimpei Nukaya, deputy director-general of the agency, told reporters.
The report is the latest in a string of downbeat assessments of the Japanese economy. Some suggested the agency merely confirmed what many people in the country already knew.
"By changing the wording of the report, the government's aim was likely to indicate that the economy has clearly worsened," said an analysis in Japan's largest newspaper, the Yomiuri. "Some private economists, however, believe that the economy already began retreating last spring."
Economic Planning Agency officials, however, said the economy could turn around -- with the right government policies.
Koji Omi, who heads the agency, said the economy could start to recover in the early spring if the upcoming fiscal year's budget is approved and proposals to stabilize the financial system are passed by Parliament soon.
Earlier this week Parliament approved a 2 trillion yen ($16.12 billion) income tax cut, part of the government's plan to boost consumption and get the economy moving again.