"I state this with firm conviction that the rebirth of the Japanese economy has already been forcefully set in motion," Kan said a ceremony marking the 50th anniversary of the Organisation for Economic Cooperation and Development (OECD).

The March 11 9.0-magnitude earthquake and tsunami left around 25,000 dead or missing, and with a subsequent emergency at the Fukushima Daiichi nuclear plant it plunged Japan into its worst post-war crisis.

Many of the country's biggest companies have seen output and profits tumble while the economy plunged back into recession in January-March, with a second consecutive quarter of contraction.

The OECD on Wednesday said it expected the Japanese economy would contract by 0.9 percent due to the disasters. It had previously forecast 1.7 percent growth for this year.

"An economic recovery driven by reconstruction demand is expected for the second half of this year," Kan said, adding that most industrial production should fully recover in the next few months.

The OECD predicts a strong rebound for the Japanese economy next year with 2.2 percent growth.

"Given the experience of past disasters in Japan and elsewhere, the large negative impact ... in the first and second quarters is expected to be reversed quickly as reconstruction efforts get underway," the OECD said in its latest Economic Outlook report.

Japan's central bank chief also noted Wednesday there were already signs of recovery.

An increasing number of plants are resuming production while there are signs of improved sales at department stores, snapping a plunge in consumer spending immediately after the quake, Bank of Japan Governor Masaaki Shirakawa said.

earlier related report
Bank of Japan chief sees signs of recovery
Tokyo (AFP) May 25, 2011 - Japan's central bank chief Wednesday likened the economic slump following the March 11 earthquake to the crisis following the collapse of Lehman Brothers -- but said there were already signs of recovery.

An increasing number of plants are resuming production while there are signs of improved sales at department stores, snapping a plunge in consumer spending immediately after the quake, Bank of Japan Governor Masaaki Shirakawa said.

"Therefore, in the second half of fiscal 2011, the sense of recovery will be somewhat more noticeable, although it will fall short of a V-shaped recovery," he told an economic forum in Tokyo.

The 9.0-magnitude earthquake and tsunami left around 25,000 dead or missing, and with a subsequent emergency at the Fukushima Daiichi nuclear plant it plunged Japan into its worst post-war crisis.

Many of the country's biggest companies saw profits tumble in the quarter while the economy plunged back into recession in January-March, with a second consecutive quarter of contraction.

Industrial output saw its biggest ever fall and spending plunged as consumer and business confidence took a tumble.

Shirakawa said Japan's most pressing short-term challenge was to resolve supply constraints as early as possible.

"The recent sharp and substantial economic plunge is similar to that following the failure of Lehman Brothers but different in terms of its mechanism: the recent downward pressure is caused by a supply-side shock," he said.

Japan's economy contracted for four straight quarters during the global economic downturn following the collapse of Wall Street titan Lehman Brothers in 2008.

But Shirakawa said the main difference was that while output was hit badly by the March 11 disaster, demand had not disappeared.

"The destruction of factories led to disruptions in the supply chains of parts and materials, which affected production not only in disaster-stricken areas but also a wide range of non-affected areas," he added.

Shirakawa said the BoJ was considering whether there is further room to expand its special lending facility to boost loans to growth sectors, in light of the damage done to the economy by the earthquake and tsunami.

"It is necessary to regard reconstruction in the quake-affected areas as a starting point to strengthening growth potential," he said.

Japan's central bank decided last week to keep the size of its asset-purchase program unchanged at 10 trillion yen and to maintain its unsecured overnight call loan rate target in the current zero to 0.1 percent range.

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