The Japanese government has acknowledged that it failed to act decisively to stop the economy from sliding into deep recession.

In its annual economic review, the government said it should have focused its efforts on the problem of bad loans accumulated by Japanese banks during the economic boom of the 1980s.

But it said no action was taken because it hoped for a recovery in prices.

In November, the biggest-ever package to stimulate the economy was announced, as unemployment in Japan reached an all-time high of more than four per cent.