Japanese leaders guiding the reconstruction after March's devastating earthquake and tsunami must next set their sights on reducing an unsustainable mountain of public debt, the IMF said Tuesday.

Japan's debt is the industrialised world's biggest at around twice its GDP after years of pump-priming measures by governments trying in vain to arrest a long economic decline.

"Although the immediate focus should be on infrastructure reconstruction, a comprehensive plan to put public debt on a sustainable footing over the medium term is essential," the International Monetary Fund said.

In its twice-yearly World Economic Outlook, the IMF advocated hiking Japan's five percent consumption tax to an eventual 15 percent to help bring down a debt equivalent to about 200 percent of GDP.

The report forecast Japan's economy to shrink 0.5 percent over the whole of 2011, slightly less than the 0.7 percent projected in June, as the recovery from the disaster proceeds apace.

The IMF lowered its projection for 2012, saying the economy would grow 2.3 percent against 2.9 percent forecast in June, but added that a rebound based on flows of reconstruction investment was well underway.

"Reports from Japan confirm a rapid recovery in both output and domestic spending. Industrial production is now growing rapidly, business sentiment is improving sharply, and household spending is recovering quickly," it said.

"Although electricity shortages will likely weigh on production throughout the summer, and the government's rebuilding programme could suffer further delays, a V-shaped short-term rebound seems to be underway."

Japan's triple calamity killed 20,000 people, devastated large areas of the northeast and sparked a nuclear crisis at the Fukushima plant which continues to leak radiation into the environment.

It also punctured a nascent economic recovery and bounced Japan back into recession, in a downturn exacerbated by the shuttering of nuclear power plants amid growing public disquiet over the technology.

The IMF emphasised that public debt needs to be tamed in order to protect Japan's longer-term future.

"(A) more ambitious fiscal strategy is needed -- equivalent to a front-loaded 10 percent of GDP fiscal adjustment over 10 years -- that brings the public debt ratio down decisively by the middle of the decade," it said.

"Specifically, the strategy should be centered on a gradual increase in the consumption tax to 15 percent."

Japan's unpopular former prime minister Naoto Kan, who resigned in August, proposed raising the current five percent consumption tax to 10 percent.

However, the plan was never written into legislation and has been shelved under the current prime minister, Yoshihiko Noda, who is wary of the political impact of raising taxes.

The plan was aimed at plugging a shortfall and funding the growing costs of providing for the nation's greying population -- two factors driving Japan's need to borrow.

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