Japan's economy contracted slightly less than first estimated in the January-March period, data showed Thursday, after the impact of a devastating earthquake and tsunami pushed it into recession.

Japan revised upward its first-quarter GDP reading to an annualised 3.5 percent contraction from an estimated 3.7 percent shrinkage, but the change was smaller than economist forecasts of minus 3.0 percent.

On a quarterly basis the reading was unchanged. Gross domestic product fell 0.9 percent in the first quarter compared with the previous three months, marking the second consecutive quarter of contraction, which economists define as a technical recession.

"The overall picture that private consumption and corporate capital spending dropped due to supply disruption and deterioration in consumer sentiment following the quake remains unchanged," a Cabinet office official said.

Before the disaster, analysts had predicted that the nation's economy would return to growth in the first quarter on rising overseas demand, after sliding an annualised 2.9 percent in the October-December period.

Instead, Japan's biggest recorded earthquake and a tsunami, which left nearly 24,000 dead or missing, and a subsequent nuclear crisis forced the economy into its sharpest contraction since a record 18.0 percent tumble in January-March 2009.

In the aftermath of the 9.0 magnitude earthquake, industrial output saw its biggest ever fall and spending plunged as consumer and business confidence took a heavy hit.

Private consumption, which accounts for nearly two-thirds of the economy, was down 0.6 percent in the quarter. Japan adopted a mentality of self-restraint in the aftermath of the disaster, which is slowly easing.

Many of Japan's biggest companies saw profits tumble in the quarter and delayed forecasts due to the scale of the disaster's impact on production and sales.

The likes of Sony and Toyota were forced to halt production. Many component manufacturers are based in the worst-hit regions of Japan, their facilities damaged by the earthquake or inundated by the giant wave that followed.

Fears of an electricity supply-demand imbalance going into the summer months have eased slightly as the government imposes a 15 percent reduction of energy use on companies, but the situation remains volatile, analysts warn.

On Wednesday the International Monetary Fund said it cut its growth forecast for Japan in 2011 to minus 0.7 percent from the plus 1.4 percent it had predicted in April.

Many analysts see the downturn continuing in April-June, as the effects of nationwide supply chain problems in the wake of the quake continue to disrupt production and the threat of power supply disruption prevails.

The latest data will help boost expectations that the Bank of Japan will keep its loose monetary policy intact for the time being, say analysts.

However, bodies such as the IMF say the economy should start to grow again in the second half as initial earthquake-related disruption is overcome and reconstruction spending starts to boost the official figures.

After enacting a 4 trillion yen ($50 billion) disaster budget last month, the government has said it will consider compiling an extra second budget in July.

Analysts warn that funding the rebuild cost will further pressure a public debt that at around 200 percent of GDP is the industrialised world's largest.

On a brighter note, Japanese consumer confidence rose in May from the previous month for the first time in four months after a post-quake slump.

The Cabinet Office's consumer sentiment index was up 1.1 points to a seasonally adjusted 34.2 after falling at the fastest pace on record in April to a two-year low of 33.1.

Readings below 50 indicate pessimism outweighing optimism.

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