The prediction is a sharp increase in the bank's assessment of the country's economic troubles. In January, the BOJ said the economy would decline 2 percent, Kyodo news agency reported Thursday.
"Economic conditions in Japan have deteriorated significantly," the bank said in its biannual economic report. The report said ''the growth rate is expected, from the latter half of fiscal 2009, to recover at a moderate pace.''
The speed of recovery depends on "the restructuring of the U.S. and European financial systems," BOJ Gov. Masaaki Shirakawa said at a news conference.
The BOJ also said it would monitor the swine flu that broke out in Mexico and has spread to Asia, Europe and the United States.
To date, the flu's impact "seems to be limited," Shirakawa said. However, "we need to carefully monitor the effects of a potential risk factor," he said.
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