Japan and the Japanese must urgently abandon their innate conservatism and become a nation of financially literate, aggressive risk-takers if the economy is to stand any chance of growth.

In a surprise warning by Japan’s Cabinet Office, the Government called on individuals, funds and corporations to become better “connoisseurs” of risk: a shift that could theoretically unlock some of the Y775 trillion (£3.6 trillion) of household assets sitting in bank deposit accounts.

“Japan's weak growth potential and companies' low profitability, arises from a shortage of risk-taking in various forms,” said a Cabinet Office report. "It is necessary for corporate Japan and households to become active risk-takers.”

By nurturing a generation of more demanding and discerning individual investors, Japan’s stock market might be able to build a better immunity to the sort of external shocks that have panicked foreign investors and sent shares into a nauseating churn of instability, said the report.

The need for greater stability in Japanese stocks has come sharply into focus: the state pension investment fund, which manages the world’s largest coffer of pension money at Y115 trillion, recently admitted that it made negative returns in the financial year that ended in March.

Leading economists, however, said that the Government’s assessment of individual investors’ risk appetites was misdirected.

The Government was wrong to view individual Japanese as particularly craven or irrational, given the incentives for them to be conservative, said Richard Jerram, chief economist at Macquarie.

“It was perfectly reasonable for individual Japanese to put their money in savings and make virtually nothing by way of returns because economic mismanagement by the Government meant that putting their money into other assets would have made them less than nothing,” he said.

As well as calling on the Japanese to become sharper, faster-moving investors, the Government report suggested that the country’s largest pension funds should become better sentinels of corporate governance and shareholder focus.

Those same vast investment monoliths should also develop a better eye for venture-style investments, said the report.

The report also criticised many features of the modern Japanese economy thought to have deterred foreign investment, including a deep-seated hostility to foreign-led merger and acquisition activity throughout the boardrooms of Japan Inc.

The unexpectedly blunt call to arms, issued by the Japanese Government in its annual white paper on the economy, marks a break with the tone of previous reports and comes as the country is reluctantly facing the end of its longest period of economic growth since the Second World War.

Although the report acknowledged the role of globally higher energy and commodity prices on a country with scant natural resources of its own, the white paper was the first to directly challenge the “attitude problem” that may be hampering Japanese growth.

At the corporate level, it said, managements are painfully slow to discard stagnant businesses and many are naturally slow to take risks.

Investment in technology start-ups and other businesses has also been lethargic at best, and done little to encourage a necessary entrepreneurial spirit.

The report compared Japanese pension fund’s lacklustre support of venture businesses — they provided just 1.2 per cent of all investment in startups in fiscal 2006 — with the 43.1 per cent invested by their US counterparts in the American start-up market.

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