The Bank of Japan (BOJ) lowered its forecast of the country's economic growth in real gross domestic product (GDP) for fiscal 2011 from April's 0.6 percent to 0.4 percent on Tuesday after the twin disasters in March.
The Japanese cental bank made the new projection during a two-day policy meeting that started Monday.
The BOJ also decided to keep its key short-term interest rate unchanged at around zero to 0.1 percent.
While the BOJ avoided predicting any contraction in GDP in the current fiscal year, it indicated that sentiment among large companies may rebound by September.
Business confidence among Japan's largest manufacturers dropped sharply in the three months to June from the first quarter in the aftermath of the March 11 earthquake and tsunami, the BOJ said in a report earlier in July.
The quarterly Tankan diffusion index of sentiment at large Japanese manufacturers fell to minus 9 in June, following a reading of plus 6 in March and 5 in December.