The economy is continuing to deteriorate, the government said in a monthly report released Wednesday.
The bleak assessment remained unchanged for the third month in a row.
In the report, the Cabinet Office slightly upgraded three individual elements -- industrial output, imports and prices -- and noted an improvement in external conditions, with the U.S. and some Asian economies "showing signs of bottoming out."
These positive signs fell short of buoying the overall assessment, however, because worries persist over most other factors, such as declining corporate investment, said Jun Saito, director for economic assessment and policy analysis at the Cabinet Office.
"There are certainly some individual factors with views slightly upgraded, but overall, economic conditions do not deserve a change in our assessment."
The better prospects for external circumstances are offset by concerns over downward pressures on domestic demand, the government economist said.
"As for short-term prospects, there is concern over the downward pressure on private demand that may be exerted by the severe employment and wage situations, and capital market developments," the report says.
Concern increased in February, particularly over equity market moves given the hike in long-term interest rates and plummeting stock prices, it says.
In addition, business investment is declining, the employment situation has become increasingly severe, as seen in the December rise to a record-high 5.6 percent in the jobless rate, and private consumption is weakening, the office said.
On the positive side, the report says industrial production is declining "at a slower pace" and exports are "showing signs of bottoming out."
The import downtrend is also weakening, it says and the previous acceleration in price falls seems to have paused, it says.