The warning from Kazuo Momma, head of the Bank of Japan's research and statistics department, underscored the gloom surrounding the world's second-largest economy as export orders dry up, companies shut down production lines and consumers snap shut their wallets and purses.

Japan, which saw industrial output plunge a record 9.6 per cent month on month in December, will announce fourth-quarter gross domestic product data next week. Polls of economists suggest GDP will have fallen more than 3 per cent compared with the previous quarter – an annualised decline of well over 10 per cent.

“From October to December the scale of negative growth (in GDP) may have been unimaginable – and we have to consider the possibility that there could be even greater decline between January and March,” Mr Momma said in a speech yesterday.