The Bank of Japan has lowered its growth forecast for the current financial year, due to a sharp fall in production in the immediate aftermath of the March 11 earthquake and tsunami.
The BoJ cut its growth forecast for the year ending March 2012 to 0.4% from an earlier 0.6% due to the record earthquake and a tsunami that devastated the northeast coast and sparked a nuclear crisis.
While the central bank upgraded its general view of the economy, saying it is 'picking up' as post-quake problems ease, it said growth prospects would be lower than earlier thought.
It added that earlier projections for 2.9% growth in the year starting April 1 2012 remain unchanged amid expectations Japan's economy will return to 'a moderate recovery path from the second half of fiscal 2011'.
The board also voted unanimously for the key interest rate to remain unchanged at between zero and 0.1%.
In the aftermath of the earthquake, the BoJ injected a record amount of cash into the banking system and doubled an asset purchase fund to 10 trillion yen ($125 billion), a key policy tool it kept unchanged today.
The BoJ said domestic demand was picking up as household and business sentiment improves, while exports should also rise in the second half, striking a more upbeat tone compared to many private sector analysts who see the economy shrinking this year.
But it warned that 'uncertainty has increased somewhat with regard to the longer-term outlook for electricity supply constraints' with generating capacity lost after March 11, including the Fukushima Daiichi nuclear plant.
The twin disasters devastated entire towns along the northeast coast and left more than 20,000 dead or missing while wreaking havoc on industry, pushing the economy into recession in Japan's worst crisis since World War II.
The nation's biggest firms such as Sony and Toyota were forced to shut plants and halt production due to shortages in electricity and parts caused by supply chain disruption, sending output and exports tumbling.
But Japan's recovery has been quicker than expected, as companies approach normal production levels ahead of earlier forecasts amid expectations that reconstruction spending will boost the economy in the second half.
