The worst of Japan's production slump appears to be over but growth momentum is expected to remain weak, with a drop in exports depressing domestic demand, the IMF said yesterday.

Japan's government may have to draw up fresh economic stimulus steps if the recession lasts longer than expected, the International Monetary Fund said.

"The worst in production declines is likely behind, and fiscal stimulus should provide significant support to growth this year and next," it said in a report following a fact-finding mission to Japan. "Nonetheless, underlying growth momentum is expected to remain weak as the export collapse spills over to domestic demand and financial conditions remain tight. Along with a pick-up in global growth, a sustained recovery should take hold during the course of 2010," it said.

The world's second largest economy logged its worst performance on record in the first quarter of 2009, contracting four per cent from the previous quarter and 15.2 per cent on an annualised basis, government data showed yesterday.

But many analysts think the slump will mark the low point in the country's worst recession since World War II. While a fresh boost to fiscal spending may be needed to tackle the downturn, in the longer term the government needs to think about reducing the public debt, the IMF said.