"I see the state of the Japan economy at present as being at the darkest stage," Taichi Sakaiya, head of the economic planning agency told reporters.

Stock markets across Asia were badly shaken today after Wall Street suffered its second worst day of losses in history.

Tokyo's Nikkei Index fell hard in morning trade to hit a new 12-year low in early trade, falling to 13,664.74 points, its worst intra-day level since March 1, 1986.

Japan is in the grip of recession and with industrial output and prices falling, deflation is now threatening to bring down the government's attempts to revive the economy.

Sakaiya blamed the poor summer weather for pressuring spending. A powerful typhoon which has killed 16 and left thousands homeless in northern Japan is also expected to take its toll on the economy.

"Although there was a sign ofrecovery in spending seen around June, poor weather pressured the spending and, because of this, corporate and consumer spending sentiment cooled," he said.