The Bank of Japan (BOJ) upgraded its assessment of the economy slightly today but kept policy unchanged as it balanced that optimism with caution over a test of depositors' confidence facing banks.
The central bank said in its monthly report that output was flat, compared with a depiction of it as weak in February's report.
"Japan's economy continues a recovery trend albeit with adjustments in IT-related sectors," it said.
It also said exports were starting to pick up, after having called them flat in February.
The BOJ uses the current account balance as a benchmark for its "quantitative" easing policy, in which it floods the banking system with liquidity so as to encourage lending to businesses and spur economic growth.
Speculation has mounted that the BOJ could soon lower or allow a temporary breach in the target as demand for extra funds in the banking sector wanes along with receding fears of a financial crisis.
But any lowering of the target would be controversial because it could be perceived as marking the end of its loose stance, which has pinned short-term interest rates near zero.
The BOJ is also seen as cautious in adjusting policy ahead of April, when the government puts a cap on state guarantees for demand deposits, limiting the figure to 10 million yen.
The move has twice been delayed to give banks time to regain their health and clear bad loans amassed during Japan's economic bubble of the late 1980s.
BOJ Governor Mr Toshihiko Fukui told a news conference after the policy board meeting that the move was likely to go smoothly, but analysts say risks remain that some weak, regional banks could face runs on deposits once guarantees are capped.