The Bank of Japan on Thursday upgraded its assessment of the economy in its September report for the third straight month.
"Japan's economy continues to recover," the central bank said in its monthly report on economic and financial developments.
The central bank essentially gave the same overall assessment in its August report but included a phrase saying that inventory adjustments in the information technology-related sectors were making progress.
It removed the phrase in the September report, making the BOJ's upbeat view appear clearer.
The BOJ held its forecast for the economy steady, saying, "Japan's economy is expected to continue to recover."
BOJ retains policy
The Bank of Japan announced Thursday it will maintain its ultra-loose monetary policy, leaving the current account balance target unchanged at a range of 30 trillion yen to 35 trillion yen.
The nine-member Policy Board decided by a vote of seven to two at the end of a two-day meeting to maintain the liquidity target for the outstanding balance of current account deposits held by private financial institutions at the central bank.
The BOJ said if there was a risk of financial market instability, such as a surge in liquidity demand, it would provide more liquidity irrespective of the target.
It also said the balance of current accounts might fall short of the target if the liquidity demand was exceptionally weak.
Under the quantitative easing policy adopted in March 2001, the central bank pumps ample liquidity into the banking system through its daily open-market tenders to guide the balance of banks' reserves.
Many analysts believe the central bank will start lowering the liquidity target in the January-March period on condition that the consumer price index does not fall below year-earlier levels.