Demand for Japanese exports has fallen sharply
Japan's industrial output declined 9.6% in December - the biggest contraction since records began - as exports slumped due to the global downturn.
Japan's Economics Minister Kaoru Yosano said the situation was unprecedented and that the drop in factory output "was likely to continue".
The unemployment rate also rose in December to 4.4%, a three-year high.
Official figures showed that 2.7 million people in Japan were without work, 400,000 more than a year ago.
Japan's economy slipped into its first recession in seven years in the third quarter of last year.
Exports have dropped as worldwide demand for Japanese products, such as cars and electrical equipment, has fallen sharply.
Prime Minister Taro Aso has told parliament he will take bold steps to ensure Japan is the first country to emerge from the global crisis.
The slump in industrial output knocked confidence among Japanese investors, and the country's main Nikkei index ended Friday down 3% or 257 points at 7,994.
Official data also showed a big drop in the rate of inflation, increasing the likelihood of deflation.
Honda is just one of a growing number of Japanese firms to see falling sales
Japan's annual core consumer inflation slowed to 0.2% in December from 1% in November.
Economists fear falling prices will deter consumers from making major purchases, ultimately worsening the recession.
The Bank of Japan has already warned that deflation will be a risk until 2011 and has cut interest rates to just above zero.
"Weakness in the overall economy will persist in January-March, and the degree of worsening depends much on how exports turn out," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.
"It is already a consensus view that core consumer inflation will turn negative soon, but we must watch if a worsening of the economy pushes Japan into a deflationary spiral even though the Bank of Japan sees no signs of that happening right now."
The gloomy official economic data came as three more Japanese companies reported poor financial figures.
Honda, the country's second-largest carmaker, said profit plunged 89% in the third quarter as global sales slowed sharply.
The company made a net profit of 20.24bn yen ($226m; £158m) in the three months to the end of December, compared with 200bn yen a year earlier.
Meanwhile, electronics and engineering group Hitachi warned that it now expects to make a loss of 700bn yen for the financial year to 31 March.
All Nippon Airways, the country's second-largest carrier, said it expects to report its first annual loss in six years.
Their reports came a day after both Sony and Toshiba warned that they would make an annual loss, while Nintendo cut its profit forecast.