"In light of recent softer economic indicators, such as (gross domestic product) data and the coincident index, we cannot rule out the possibility of the economy falling into recession," the central bank chief said in a speech.

"However, overall, I see a low risk of the economy falling into a serious recession," Fukui said.

Although the government does not officially call 2004's economic performance a "recession", Fukui said he could not deny that the economy was in a technical recession.

His comments followed news earlier Monday that January industrial output rose 2.1 percent, well above economist forecasts for a gain of 0.8 percent after a fall of 0.8 percent in December.

The trade ministry also said commercial sales in Japan, or total sales at the wholesale and retail levels, rose 3.1 percent year-on-year in January, the eighth consecutive monthly increase.

Last week, Finance Minister Sadakazu Tanigaki said the economy should pick up later this year on firmer exports and recovering consumption.

Official data showed that Japan's GDP has contracted mildly since April, slipping into a technical recession as slower exports and consumption hit total output.

The three quarters' downturn is the worst since the economy contracted for four consecutive quarters from April-June 2001 to January-March 2002, when it was hit by the bursting of the information technology bubble.

Economists have said the world's second-largest economy should be back on track later this year in line with an expected global economic recovery.