The report from the Cabinet Office came as Prime Minister Yoshihiko Noda, under growing political pressure, prepared to dissolve the lower house of Parliament Friday to pave the way for an early election Dec. 16. His Democratic Party of Japan has been in office since 2009.
Citing the global slowdown, the Cabinet Office in its November report said exports and production in the world's third-largest economy remain sluggish, and private consumption and business investments were slowing, Kyodo News reported.
Earlier this week, the government reported the economy, hurt by slowing exports, shrank at an annualized 3.5 percent in the July-September quarter. That represented a 0.9 percent contraction in the gross domestic product from the previous quarter.
The latest downward revision in the assessment of the economy could bring more pressure on the Noda government and calls for more stimulus measures. Japan's economy was hit hard by the devastating earthquake and tsunami in March of last year.
In addition to the global slowdown, Japanese exports have also been affected by a rising yen and by the East China Sea island territorial dispute with China, which set off a number of violent anti-Japan protests in Chinese cities. China is a major trading partner of Japan and the territorial dispute already has begun to impact bilateral trade estimated at about $350 billion annually.
In an earlier report, The New York Times quoted economists as saying they expect further contraction in the next quarter, triggering a recession.
However, the situation was expected to bottom out by the end of the year.
Japan's central bank has twice in the past two months eased its monetary policy under its asset lending program.
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