The Bank of Japan (BoJ) upgraded its assessment of the Japanese economy for the second month in succession as exports began to rise and factory production stopped sliding.
But private demand remained weak, pressured by high unemployment and lower wages as companies cut costs to survive a deep recession.
"Japan's economy still continues to deteriorate as a whole, but the pace has moderated somewhat," the central bank said in its monthly report for April. "Net exports are gradually starting to increase while overseas economies are clearly gaining momentum for recovery," it said.
Signs a decline in exports was bottoming and stockpiles were being reduced prompted the BoJ to upgrade its assessment in March for the first time in 20 months.
The overall tone was more upbeat for April as the effects of a pick-up in external demand began to filter through the economy.
But the BoJ warned again in April that business investment continued to decrease and private consumption remained weak, with sluggish housing investment and declining public investment.
The central bank warned of uncertainties in the global recovery and highlighted the prolonged slump in private demand in Japan, saying it would still take some time before the overall economy stopped declining.
On Thursday, the BoJ decided to leave its monetary policy unchanged.
AFP