Although the economy is suffering a downturn because of the slowdown in the U.S., Japan is unlikely to experience a recession in the foreseeable future, Fujio Mitarai, chairman of the nation's biggest business lobby, said Thursday.

Since the end of last year, personal consumption and corporate investment have been flat, causing the economy to level off, said Mitarai, head of the Japan Business Federation (Nippon Keidanren).

"Japan's business is currently in a severe condition," Mitarai told the Foreign Correspondents' Club of Japan. "But I don't think it will suffer a sharp decline and go into a recession."

Mitarai, also chairman of Canon Inc., pointed out that Japanese businesses have become stronger and are no longer suffering from excessive investment, debt and employment, thanks to streamlining efforts made in the 1990s.

He was gloomier about the U.S. economy, however.

"At first, I had predicted that the U.S. economy would recover in the latter part of this year, but I need to revise that forecast," he said, adding it may not pick up until next year.

Mitarai at the same time warned Japan will not enjoy sustainable growth if it fails to carry out tax reform, including raising the consumption tax and slashing corporate taxes.

Compared with other countries, Japan places more weight on direct taxation, such as corporate and income taxes, rather than the consumption tax and other forms of indirect levies, he said. The current ratio of direct and indirect tax is 7-to-3. He said it should be 1-to-1.

"When the central government depends more on direct tax, revenue is easily affected by the state of the economy," Mitarai said. "We need to impose tax equally on assets, income and consumption."