Japan's economy is expected to shrink 0.4 percent in fiscal 2011, the country's central bank forecast Tuesday, a reversal of its previous projection of 0.3 percent growth, AFP reported.
The Bank of Japan said it expected growth of 2.0 percent in fiscal 2012, a slight reduction from its previous prediction of 2.2 percent growth. "Japan's economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen," it said in a statement.
It also cited the "remaining effects" of record flooding in Thailand that disrupted the supply chains of many of the country's key manufacturers.
The bank said the reversal in the forecast was due to past GDP statistics being revised, as well as the financial slowdown in the rest of the world.
Japan is now the world's third-biggest economy after it was overtaken by China in the global GDP stakes in 2010.
The BoJ said that the outlook was for "moderate recovery.. as the pace of recovery in overseas economies picks up… and reconstruction-related demand after the (March 2011) earthquake disaster gradually materialises".
But it warned: "The sovereign debt problem in Europe could result in weaker growth not only in the European economy but also in the global economy particularly through its effects on global financial markets."
Japan has been mired in deflation for years, and the BoJ said it expected prices excluding fresh food to remain largely static in 2011 and 2012.
"Although global financial markets remain under heavy strain, financial conditions in Japan have continued to ease," the BoJ added.
