The Bank of Japan Thursday lowered its real GDP growth forecast for this fiscal year to 0.6 per cent from its earlier 1.6 per cent projection, citing the impact of the March 11 quake and tsunami.

"The earthquake disaster is exerting downward pressure on the economy essentially in the form of a supply-side shock mainly due to damage to production facilities," the BoJ said in its twice-yearly outlook.

However, the bank raised its outlook for fiscal 2012 to 2.9 per cent growth from its earlier 2.0 per cent forecast, citing the economic stimulus it expects from vast reconstruction efforts in the disaster-hit northeast.

"In the short run, the effects of supply-side constraints will dominate, but such constraints will eventually ease and instead the effects of investment to restore damaged capital stock will become more evident," the bank said.

The central bank also predicted an end to deflation, which has long hampered growth in the world's third largest economy, this fiscal year, seeing a 0.7 per cent rise in the core consumer price index for both fiscal 2011 and 2012.

The massive quake, the strongest ever recorded in Japan, left 26,000 people dead or missing and impacted the economy by destroying entire towns and vast infrastructure, disrupting industrial supply chains, causing energy shortages by damaging atomic power plants, and dampening consumer sentiment.

channelnewsasia.com