Companies are finding it tougher to raise funds, “reflecting the turmoil in global financial markets,” he warned.

The Bank of Japan (BoJ) was drawing up steps to help firms gain access to credit in the run-up to the end of the fiscal year to March, Shirakawa said in a speech to business leaders in the southwestern city of Fukuoka.

The central bank said it would hold an extraordinary meeting on Tuesday to consider making it easier for commercial banks to borrow money using corporate debt as collateral to ensure credit keeps flowing through the economy.

The BoJ announced similar measures to help companies in November 1998 after a number of banks collapsed under mountains of bad debts.

Japan slipped deeper into recession in October as factory output tumbled, consumer spending dropped and inflation slowed, according to data out last week.

“As overseas economies are expected to continue to face a difficult situation, Japan’s economy, which recorded negative growth in the second and the third quarter of this year, is likely to continue to show increased sluggishness over the next several quarters,” Shirakawa said.

“The price situation has also changed significantly,” he said, warning that consumer prices may start to fall again “for a brief period” in the next fiscal year.

The central bank in October cut its super-low interest rates for the first time in seven years, by 20 basis points to 0.3 percent, as part of efforts to calm volatile markets and boost the recession-hit economy.

Shirakawa has since warned that cutting interest rates too much could prevent money markets from functioning efficiently, dampening speculation about a further reduction in borrowing costs.

Instead, the central bank is looking at alternative measures to keep credit flowing to companies that have been hit hard by the global credit crunch, weak domestic demand and a slump in exports to ailing overseas economies.

Kaoru Yosano, the economics minister, warned that Japan’s economy faced a bleak outlook.

“I cannot tell you it will be a bright next day,” he told the Financial Times.

“We are moving to the next phase of shrinking consumption — some call it deflation — production going down and prices going down.”

Some analysts think the BoJ will eventually be forced to lower interest rates again, with RBS Securities analysts predicting a cut to 0.1 percent.

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