People make their way through a shopping district in Tokyo.
The government expects that the economy, the world's third largest, will pick up going forward, but Japan needs to pay full attention to the impact of China's spreading infectious diseases after it dropped stringent pandemic curbs, the report said.
The Bank of Japan slashed its growth projections for the next two fiscal years because of worries that the slowing global demand will affect Japan's export-reliant economy.
The economy is recovering moderately, but there is weakness seen recently, according to the latest report by the Cabinet Office.
The authorities have slashed its assessment on exports for the first time since November 2011, while it also slashed its view on imports for the first time in three months. The January report said that both exports and imports are weaker compared to the previous view of almost flat last month.
An official at the Cabinet Office said that the possibility of China's coronaviruses could affect Japan's exports and production and it has become clearer than last month.
The government has remained cautious about the downside risks from the global economic slowdown due to monetary tightening, inflation and financial market fluctuations.
Private consumption was picking up moderately in the latest report, as the Cabinet Office maintained its assessment of Japan's domestic demand.
The recovery in industrial production was stalling, as per the government's view in December.