"The economy likely suffered a big contraction in April-June due to weak domestic and external demand," said Taro Saito, executive research fellow at NLI Research Institute.
"Domestic demand may look up from June, but exports will remain very weak, putting a drag on overall economic recovery," he said, adding that the worsening of the economy would flow on to the labour market.
The deterioration in economic conditions has triggered an increase in the jobless rate and a fall in the number of available jobs, while stoking fears of bankruptcies.
The seasonally adjusted jobless rate rose to 2.9% in May from 2.6% in April, separate government data showed, the highest rate since May 2017.
While the jobless rate remained below 3%, less than in many advanced countries, economists say the actual figure is higher, given the rise in furloughed staff and the impact of discouraged workers who have stopped seeking jobs.
The coronavirus fallout has pushed 290 firms into bankruptcy since the end of February, with many service-sector firms like restaurants, hotels and inns and apparel suffering the most, data from private credit research firm Teikoku Databank showed.
CAR PRODUCTION FALLS
The decline in factory output followed a 9.8% drop in the prior month, and was much bigger than the median market forecast of a 5.6% drop in a Reuters poll of economists, the data showed.
On a positive note, manufacturers surveyed by METI expect output to rise 5.7% in June and 9.2% in July.
The government, however, left its assessment of industrial production unchanged, saying it was "lowering sharply", the bleakest official view since late 2008.
Output of cars, production machinery, steel and other broad industries were hit hard by slumping demand at home and abroad due to the pandemic. All industries surveyed posted a fall in output.
Global production at Japan's major automakers, including Toyota Motor Corp and Nissan Motor Co, slumped 62% in May from a year ago, following a 55% fall in April, as car demand plunged globally amid lockdowns to stop the virus from spreading.
Japan's economy shrank an annualised 2.2% in January-March, slipping into recession for the first time in 4-1/2 years, and analysts expect the health crisis to have driven a deeper slump in the current quarter.
The number of employees fell in May by 730,000 workers compared to a year earlier, posting the biggest annual decline since November 2009, a government official said.
The number of furloughed workers stood at 4.23 million, the second highest on record after hitting an all-time high of 5.97 million in April.
The jobs-to-applicants ratio fell to 1.20 in May from 1.32 in April, falling at its fastest pace since 1974 to mark the lowest reading since July 2015, labour ministry data showed. It means six jobs were available per five job-seekers.
(Reporting by Tetsushi Kajimoto Editing by Shri Navaratnam and Richard Pullin) ((firstname.lastname@example.org; +81-3-4563-2731;))