Heizo Takenaka, minister of economic and fiscal policy, said Tuesday that the economy may also contract in fiscal 2002.
"A (minus) figure may be possible," he said at a news conference, referring to the government's forecast for gross domestic product. On Monday, the Bank of Japan said the economy could shrink as much as 1.2 percent for the year that ends in March.
If the government decides the economy is headed for a contraction next year, it would mean Japan is on its way to seeing two consecutive years of negative growth, which has never happened in the postwar period. It would also be the first time the government has predicted a contraction in an official economic forecast.
The report will be released in December along with the budget plan for 2002.
For the current fiscal year, the government is expected to lower its economic forecast from the originally projected 1.7 percent growth to negative growth of around 1 percent, government officials said.
Takenaka attributed the gloomy outlook to the slump in the U.S. information technology sector and the aftershocks of the terrorist attacks in the United States, which are rippling through the Japanese economy.
"Suppose the U.S. economic recovery were to be pushed back to the second half of 2002, about a year later than expected, (negative growth in Japan) may be possible," he said.
The Bank of Japan is also expecting a contraction.
In in its latest economic outlook, released Monday, the central bank said the economy could show negative growth in fiscal 2002 in a range between minus 1.1 percent and 0.1 percent.