"As a result of the disaster, the economy will inevitably continue to face strong downward pressure for the time being," mainly due to damage to production facilities, the BoJ said in its twice-yearly outlook.

It predicted that in the short term "corporate profits will likely fall significantly as a result of the substantial decline in exports and production" as well the effects of higher global commodity prices.

However, the bank raised its real GDP growth outlook for fiscal 2012 to 2.9 percent growth from its earlier 2.0 percent forecast, citing the stimulus it expects from vast reconstruction efforts in the disaster-hit northeast.

"In the short run, the effects of supply-side constraints will dominate, but such constraints will eventually ease and instead the effects of investment to restore damaged capital stock will become more evident," the bank said.

The central bank also predicted an end to deflation, which has long hampered growth in the world's third largest economy, this year.

For both fiscal 2011, which started on April 1, and next year, it predicted a 0.7 percent rise in the core consumer price index. Its earlier predictions were for 0.3 percent this year and 0.6 percent in fiscal 2012.

Earlier in the day the BoJ left its key interest rate unchanged at between zero and 0.1 percent to free up credit and stimulate the economy.

The quake, the strongest on record in Japan, and tsunami left 26,000 people dead or missing along the Pacific coast of the main Honshu island and sparked the world's worst nuclear accident since Chernobyl 25 years ago.

The seismic disaster badly impacted the economy by destroying entire towns and vast infrastructure, disrupting industrial supply chains, causing energy shortages by damaging atomic power plants, and dampening consumer sentiment.

The central bank said that before the mega-quake, Japan's economy was emerging from the effects of the 2008-09 downturn as its exports and production were picking up in line with growing global demand.

"The situation changed significantly as a result of the earthquake," the BoJ said. "The earthquake has led to the loss of a large number of production facilities in widespread areas directly affected by the disaster," it said.

"In addition, difficulties in procuring materials and parts have disrupted supply chains on a national scale."

Japan's top companies, such as the world's biggest automaker Toyota, have had to temporarily shutter plants or slow production at home and overseas because key parts suppliers were hit by the tsunami.

"It is likely to take some time to reconfigure supply chains despite firms' ongoing efforts to restore affected facilities, carry out production at alternative sites, and secure alternative suppliers," said the bank.

The disaster also damaged the national power grid and several atomic power plants, including the radiation-leaking Fukushima Daiichi facility.

"Power shortages have become another supply-side constraint," said the BoJ. "As a result, production in some areas has declined sharply, severely affecting exports as well as domestic shipments and sales."

It predicted that "power supply shortages could put certain constraints on economic activity when electricity demand peaks in the summer," as millions use their air-conditioners.

The disaster also impacted business and consumer sentiment, therefore "exerting downward pressures on business fixed investment and private consumption," said the central bank.

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