TOKYO - THE Japanese government said on Tuesday that the country's investors and households needed to take more risks to spur growth that has been sapped by high oil prices and a faltering US economy.

The government made the recommendations in an annual white paper released shortly before the Cabinet Office downgraded its economic growth forecast for the year to 1.3 per cent from 2.0 per cent.

'It is important that the Japanese corporate and household sectors take risks. Unless they take risks, growth cannot be attained,' the white paper said.

The white paper encouraged better knowledge about finance among ordinary Japanese, saying insufficient awareness about financial markets had discouraged individuals from investing their savings.

'Households with higher knowledge of finance and IT tend to have higher levels of their household capital allotted for investment purposes,' it said.

'Improving the general literacy of those fields can lead to higher provision of risk money from the household sector to the corporate sector,' it said.

The Japanese historically have kept large amounts of money in personal saving accounts, helping the country finance debt.

But savings rates have dropped sharply since the economy went into recession in the 1990s as people on low or fixed incomes dip into their bank accounts for their daily expenses.

The white paper said that a slowdown of US growth, soaring oil and raw material prices and movement of financial markets posed short-term risks to Asia's largest economy.

It also noted that salaries of Japanese workers have not been rising, despite growing corporate earnings.

While oil prices inflated the value of imports, the value of Japanese exports remained flat, as Japanese firms hesitate to increase their prices due to competition from other Asian firms, the white paper said.