A government report has revealed that Japan's deflation has been due in part to sluggish consumer demand and a slow response to structural flaws in the financial system.

The lack of domestic demand was coupled with a reliance on exports to keep the economy moving, which has made it vulnerable to price competition in China and other emerging markets, the Kyodo news service said on Saturday.

It has been reported that the conclusions were contained in the annual report on the economy released by the Cabinet Office on Friday. The report urged the government and the Bank of Japan to develop strategies to grow the economy in ways other than price competition.

Demand cooled off in the early 1990s when Japan's economic bubble popped, well before the 2008 downturn that blunted consumer demand in other industrialized nations, the report said.

It has further been reported that the result of the 2008 slump has been a new round of cost-cutting and layoffs within Japanese exporters that are finding it tougher to compete in foreign markets. (With Inputs from Agencies)