Economic recovery appears to be pausing

Japan's Cabinet Office

In a monthly report released on Friday, the government downgraded its assessment of the economy, only days before the Bank of Japan meets on Monday to consider its interest-rate policy.

"Economic recovery appears to be pausing," the Cabinet Office said in the report, which is submitted to Prime Minister Yoshiro Mori.

The term "pausing" was last used in the report in January 1998. Last month the report had said that the pace of recovery had become more "moderate".

Slowdown

The economic blip was attributed to the slowdown in the United States, which has prompted Japanese exports to falter.

In light of the downgrade, analysts are growing increasingly certain that the Bank of Japan will return to a zero interest-rate policy, which was abandoned last year amid controversy.

But despite the admission that the country is suffering from deflation, the government remained adamant that the economy is still heading toward a self-sustaining recovery.

The Cabinet Office cited growth in corporate spending as evidence that the recovery is on route.