The Japanese administration decided to downgrade its outlook for the economy in February for the first time in three months due to slowing consumer spending.
The government also downgraded its assessment of consumer spending for the first time in two years, saying growth appeared "stalled", underscoring the challenge for the Bank of Japan in finding a way out of its ultra-easy monetary policy this year.
The pessimistic assessment comes after data last week showed Japan's economy unexpectedly slipped into recession in the fourth quarter on weak domestic demand. This could indirectly result in losing its position as the third largest economy in the world.
The lower assessment of consumer spending is due to a stalled recovery in service spending and a decline in durable goods spending due to factors such as rising prices.
The country's real wages also declined for the 21st consecutive month in December as inflation outstripped wage recovery and continued to weigh on households.
Production halts at Toyota Motor Daihatsu's small car unit over safety issues have slowed automotive output. Toyota also delayed the delivery of several models after discovering flaws in certification tests for diesel engines developed by its Toyota Industries subsidiary.
