The Bank of Japan on Friday struck a more upbeat view of the world's number three economy, saying exports were showing signs of picking up while factory output has started to "bottom out".
The comments came after policymakers wrapped up a two-day meeting where they voted by an 8-1 margin to hold off fresh easing measures, after announcing in late October a huge expansion of the BoJ's asset-buying programme.
The yen weakened slightly against the dollar and euro after the announcement, with the focus now on bank governor Haruhiko Kuroda's regular post-meeting news briefing later in the day for any hints about policy moves in the new year.
"Japan's economy has continued to recover moderately as a trend...(while) overseas economies -- mainly advanced economies -- have been recovering, albeit with a lacklustre performance still seen in part," the BoJ said in a post-meeting statement.
"In this situation, exports have shown signs of picking up."
Private consumption remains "resilient" while real-estate investment has "started to bottom out", the bank said, echoing its view of factory output, which edged up 0.2 percent on-month in October, beating market expectations.
"Business sentiment has generally stayed at a favourable level, although some cautiousness has been observed," it added.
The announcement came after the BoJ's quarterly Tankan survey this week showed confidence among major Japanese manufacturers edged down in the three months to December.
A separate bank report Thursday highlighted caution among firms that were holding a record amount of cash equivalent to almost half the country's gross domestic product, despite calls for more wage hikes and capital spending.
Plunging oil prices have helped narrow Japan's gaping trade deficit while a sharply weaker yen has been a plus for exporters. But lower energy import prices are also digging into the BoJ's efforts to reach 2.0 percent inflation, which is aimed at ending years of deflation and tepid growth.
Tokyo's broader attempt to stoke the economy took a hit after an April sales tax rise slammed the brakes on growth as Japan sank into recession during the third quarter.
- More easing possible -
The decline prompted Prime Minister Shinzo Abe to delay a second sales tax rise initially planned for next year and call snap elections that he easily won on Sunday.
But the second tax-hike delay prompted Fitch last week to place Japan's sovereign credit on Rating Watch Negative, warning that it would put at risk the government's plan to shrink one of the world's heaviest public debt burdens.
That came after Moody's downgraded Japan's credit rating, citing "rising uncertainty" over the debt situation and Abe's faltering efforts to kickstart the economy.
The BoJ's decision on Friday means it will keep trying to pump cash into the banking system at an annual pace of about 80 trillion yen ($670 billion), a scheme designed to stimulate the wider economy.
In October, the bank surprised markets by announcing it would expand asset purchases by as much as 20 trillion yen annually to the current level, sending the yen into freefall.
It also slashed its economic growth forecast by half and trimmed consumer price expectations as its much-touted inflation target looked increasingly out of reach -- stoking speculation of further easing measures in 2015.
"Wage growth is set to remain sluggish next year and, with households also likely to be trying to rebuild their savings, we expect consumer spending to be subdued," Capital Economics said in a note.
"This suggests that GDP growth in 2015 will be much weaker than many expect. Weak demand alongside recent falls in commodity prices will weigh on inflation, triggering more easing by the Bank of Japan, perhaps as early as the spring."