Economy and fiscal policy minister Kaoru Yosano said the ripples of the disaster that struck the country last month would be felt widely.

"The blow to the economy is bigger than initially thought," Yosano said, the Nikkei business daily reported.

The damage "is wide-ranging. (The tsunami) hit the region that has sophisticated manufacturing as well as the primary industries. I think the blow to the economy is larger than our original expectations," Yosano said.

The March 11 disaster has plunged Japan into its worst crisis since World War II, unleashing a tsunami that wiped out towns along the northeast coast to leave more than 27,000 dead or missing and triggering a nuclear crisis.

With infrastructure ravaged, key supply chains have been broken and power shortages have crippled production for Japan's biggest companies, such as Sony, Toyota and Honda.

Output overseas has also been compromised, with a shortage of Japanese components affecting global markets.

Many see Japan sliding into a temporary recession as a result of the impact of the disasters. The Bank of Japan's Tankan survey last week showed Japanese business confidence in the outlook for the next three months had plunged.

Japan has said the cost of rebuilding could be as much as 25 trillion yen ($295 billion).

The estimate does not include the potential cost of contamination of the food and water supply from the crippled Fukushima Daiichi nuclear plant.

The monster wave knocked out reactor cooling systems at the plant north of Tokyo, causing explosions and the release of radiation.

Tens of thousands of people have been evacuated from a 20-kilometre (12-mile) radius around the plant amid a contamination scare that has led to restrictions on farm produce and overseas bans on the import of Japanese goods.

Japan upgraded its nuclear emergency to a maximum seven on an international scale of atomic crises on Tuesday, putting it on par with the Chernobyl disaster, and making it a "major accident" with "widespread health and environmental effects".

Tokyo stocks slid 1.69 percent Tuesday on concerns for the economy.

Yosano's comments came a day after the International Monetary Fund lowered its 2011 growth forecast for Japan, citing "large uncertainties" hanging over the world's third-biggest economy a month after the huge earthquake.

A mammoth rebuilding task will be required, but Japan faces a huge challenge in financing it without expanding a public debt that is already the industrialised world's biggest at around 200 percent of GDP.

Ratings agency Standard & Poor's in January cut Japan's credit rating for the first time since 2002, and in February Moody's lowered its outlook for Japan's sovereign debt to "negative".

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