The effects of last week's catastrophic earthquake and tsunami are likely to push down the gross domestic product by a net 0.2 percent or more in fiscal 2011, which starts next month, Daiwa Institute of Research Ltd. said Friday.
The institute said factors including a slump in economic activities in devastated Tohoku areas, a reduction in production due to power rationing and a decline in personal consumption triggered by deteriorating consumer sentiment are likely to pull down GDP by at least 0.7 percent.
But demand for reconstruction work will also buoy GDP by about 0.5 percent, it said.
The institute also said the strength of the yen versus the dollar and the ongoing crisis at the Fukushima No. 1 nuclear power plant are likely to decrease GDP.
"Depending on developments at the nuclear power plant, the downward risk could widen," said Mitsumaru Kumagai, chief economist at the institute.
Kumagai called on the government to secure the safety of the crippled nuclear plant, while urging the Bank of Japan to further ease its monetary grip and conduct with the Finance Ministry a coordinated intervention with other countries to prevent the yen from rising sharply on speculative moves.