Japanese economy 'at standstill'

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A foreign exchange dealer reacts at a trading room in Tokyo
Image caption,
The yen has strengthened to a 15-year high against the dollar in recent weeks

The Japanese economy is at a standstill, Japan's government has said, as concerns about the strong yen continue to grow.

The recovery in the economy was "pausing", the Cabinet Office said in a monthly statement.

It is the most negative the government has been about the economy in nearly two years.

The rising yen and a slowdown in global demand for Japanese exports was blamed for the downgrade.

In recent months, the government has insisted that the economy is "picking up".

But it said it now expected the economy to remain weak for some time, with "weakening" exports a chief concern.

It said shipments to Asia in particular were becoming weaker, further hitting exporters that are already suffering from the strong yen.

Recession 'possible'

The yen remains near a 15-year high against the US dollar, despite the finance ministry's decision to intervene in the currency markets last month for the first time in six years.

Japanese Prime Minister Naoto Kan has also passed a 5.1tn yen ($63bn) stimulus package in an effort to protect exporters who have seen the poor exchange rate eat into their profits.

At the close of markets in Tokyo, the yen was trading at 81.44 yen to the dollar, just off the high of 81.27 yen.

Government officials said a return to recession could not be ruled out.

"If the economy turns out as expected in our main scenario, we may end up describing the current situation as a soft patch," said a senior official at the Cabinet Office, quoted by Reuters.

"But if it comes under further downward pressure, it could end up slipping into recession."