Japan' economic outlook for the fiscal 2008 and 2009 deviated downward from the assessment conducted in January, a report from the Bank of Japan showed Thursday. The central bank reiterated that the economic conditions in Japan have deteriorated significantly.

For the fiscal 2008, the BoJ forecasts real GDP to contract 3.2% compared to a 1.8% decline estimated in January. Meanwhile, the annual inflation rate for 2008 was left unrevised at 1.2%.

The central bank also revised the GDP forecasts for fiscal 2009 and 2010. The economy is now expected to shrink 3.1% in the fiscal 2009 and to grow 1.2% in the fiscal 2010. According to the forecasts made in January, decline in the fiscal 2009 was seen at 2% and growth for 2010 at 1.5%.

The pace of deterioration in economic conditions will likely moderate gradually and start to level out, the central bank stated.

BoJ expects economic activity and corporate profits to gradually pick up from the latter half of fiscal 2009. Improvements in financial conditions are forecast to support the recovery in the latter half of the projection period.

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