Japan`s Economy Expected to Shrink 2 Pct.

The Japanese economy is forecast to contract two percent this year, the Bank of Japan said yesterday.

Japan is expected to see the second consecutive year of minus growth this year, its worst performance since World War II. The Japanese economy shrank 1.8 percent last year.

Japan`s highest negative growth was minus 1.5 percent in 1998.

Considering the deepening economic slowdown, the Bank of Japan downgraded its 2009 growth forecast from the 0.6 percent it projected in October last year.

Tokyo had predicted almost zero growth this year but most domestic think tanks forecast a decline to the minus two percent range.

Bank governor Masaaki Shirakawa warned of a deflationary spiral, saying, “The aggravating factor for economic growth will be malignant deflation that creates a vicious circle of falling prices and worsening economic conditions.”

jkmas@donga.com