Shoppers are simply refusing to spend
In its monthly assessment of the economic situation, the BoJ downgraded its forecasts for growth - or rather contraction - this year, for the sixth straight month.
It now believes the economy will shrink 0.9% in the full year to March.
Earlier in November, the International Monetary Fund cut its own estimates of Japanese growth for the year to December to the same figure.
Jobs evaporate
The problem is that with investment bottoming out, companies overburdened with debt are getting rid of staff in a lay-off frenzy of a scale new to Japan.
Unemployment, traditionally no more than 2-3%, has now hit 5.3%.
"Adjustments in economic activity are becoming more severe, as the substantial decline in production is beginning to have an adverse effect on private spending through decreases in employment and income," the BoJ said.
Consumer spending accounts for 55% of Japan's gross domestic product, and has been causing problems because Japan is in the grip of deflation.
Prices are falling, rather than rising, and Japanese consumers - always much more focused on savings than those in Europe or the US - have been holding off on some spending as a result.
Now, though, the BoJ says the situation is becoming worse, as the global slowdown has accelerated since 11 September.
While before it said consumer spending was flat, it now describes it as "gradually weakening".
US threat
Corporate profits are also sliding, the Bank said, and a prolonged slump in the US will only make matters much worse.
"If the downturn in US private consumption persists, it may induce another round of adjustments in the Japanese economy, starting from the decline in exports such as of consumer goods."
Throughout the economic trials of the past decade, Japan's big industrial firms have managed to keep their heads above water by concentrating on the export market.
That option, increasingly, seems to be off the cards.
And with bad debt already making lending risky, the country's financial institutions are becoming increasingly cautious in their decisions on loans.