The Bank of Japan today said the worst may be over for the world's second-biggest economy, despite figures earlier this week showing it shrank at a record pace in the first three months of the year.

"The pace of deterioration in the Japanese economy will likely moderate and the economy will likely stop deteriorating," the Bank said in a statement this morning.

Wednesday's data showing Japan's GDP shrank 4% in January, February and March sent shock waves through the global financial markets amid fears that it could be heading into another period of economic crisis.

Exports of cars, flat-screen TVs and other Japanese goods have been hit hard by the economic downturn in western markets, prompting local manufacturers to slash their capital spending, putting a further drag on the economy.

Unemployment has soared in recent months.

The Japanese government plans to set up a lending scheme worth up to 4 trillion yen (£269.1 million) to encourage banks to lend to large and medium-sized companies.