The Bank of Japan on Friday boosted its inflation and economic growth projections for the world's third-largest economy as it eyes an end to years of deflation.
The report, which came as the BoJ stood pat on new policy measures, estimated 2.9 percent growth in the economy for the fiscal year to March, up from an earlier 2.3 percent projection made in January. It also tipped inflation to hit 0.7 percent, also up from an earlier 0.4 percent projection.
"Japan's economy has stopped weakening and has shown some signs of picking up," the BoJ said in its report, pointing at a likely rise in business investment and private spending as consumer sentiment improves.
The bank said there was also likely to be a spike in demand ahead of a tax increase later in the year. Japan's sales tax is set to double to 10 percent by 2015 as Tokyo tries to pay down a huge national debt as social security costs soar due to a rapidly ageing population.
Also on Friday the bank held off announcing any new policy measures as it wrapped up its first meeting since unveiling a huge stimulus package this month aimed at stoking the economy and beating years of deflation.
Falling prices are a negative because they encourages consumers to put off spending in the belief their intended purchases will be cheaper in the future, softening demand and hurting producers.