Tokyo  - Japan is back in a period of falling prices for the first time in three and a half years, the government said on Friday.

Deputy Prime Minister Naoto Kan said after a cabinet meeting that the economy was in a deflationary phase.

Minister of Finance Hirohisa Fujii said he was very worried. "We are aware of the serious risk," he said.

The last time Japan's economy was in deflation was between March 2001 and June 2006.

Fuji said that fiscal policies alone such as higher public spending were not enough to reverse the trend of falling prices. He said the private sector had to supply much more of the stimulus. (dpa)