TOKYO - JAPAN on Friday forecast zero growth for the year to March 2010, with the government battling to stave off a prolonged contraction in the world's second-largest economy.

It was Japan's first zero growth forecast in real terms in seven years as Asia's largest economy is battered by slowing demand overseas for its exports and a slump in domestic demand.

The global economic crisis has plunged Japan into recession in the current year through to March 2009, despite earlier government projections of growth.

Prime Minister Taro Aso's cabinet approved the projection at a cabinet meeting, one week after he announced a giant US$255 billion (S$367.4 billion) stimulus package to fight the slowdown.

Combined with previously announced pump-priming, economic stimulus measures under his government total about 44 trillion yen.

On a nominal basis, or before adjustments for changes in prices, Japan still expects growth of 0.1 per cent for the year until March 2010, despite grim projections by private research institutes.

Exports will be hit by a stronger yen and stagnant demand overseas while the nation's jobless rate will shoot up to 4.7 per cent, the government said.

Unemployment stood at 4.0 per cent in September.

Both the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development forecast the Japanese economy will shrink for the calendar year of 2009, together with other developed nations.

The IMF said on Thursday that the global economy will likely shrink 0.4 per cent next year, the first contraction on a global scale in decades.

But Japan's government hopes its latest economic package - which still needs approval by the divided parliament - will help boost personal spending and housing investment.

For the year to March 2009, the government now forecasts the nation's GDP to shrink a real 0.8 per cent, reversing its earlier estimate of 1.3 per cent growth.

Earlier this month, the government said Japan's economy shrank 0.5 percent in the three months to September, when Japan entered its first recession in seven years with a second straight quarter of negative growth.

Japan has relied on brisk exports of cars, electronics and other goods to drive its recovery from recession in the 1990s, but now sees exports weaken due to stagnant demand in recession-hit overseas economies and the recent surge in the yen against the dollar. -- AFP