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The Japanese government said on Friday that the nation has fallen into deflation, exacerbating fears that the recent tentative economic recovery may slide into reverse.
Deputy Prime Minister Naoto Kan said the country now faces a "deflationary situation" and that the government will work with the Bank of Japan to implementpolicies to attempt to prevent an all out economic crisis.
Finance Minister Hirohisa Fujii also said he believes the economy is in a troubled situation. "We are aware of the serious risk. The situation is not as it should be," he said.
Fujii argues that while there was a certain amount the government could do to try to turn things around, "when it comes to fixing the economy, it has to come from the private sector."
Japan's economy has suffered over the last year, since the shock waves from the credit crisis that started in the United States reached its shores. Over the last year, the government has put in place a series of measures to attempt to revive the market and get people to start spending.
Over the last few months, there have been positive signs from the manufacturing sector, but statistics released on Monday showed that the domestic demand deflator a key indicator of deflation had slipped by 2.6 percent, its biggest fall in more than half a century.