) -- The Bank of Japan kept its key interest rate steady and upgraded its outlook for growth by projecting real gross domestic product to fall 2.5% in the fiscal year ending in March.
Japan's central bank previously forecast GDP to fall 3.2%.
Bank of Japan said it expects expects GDP to expand 1.3% next fiscal year, up slightly from its previous forecast.
The vote to keep the overnight call rate target at 0.1% was expected. The vote at the Bank of Japan's policy board was unanimous.
"Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," the BOJ said in a statement. "Exports and production have been increasing against a backdrop of progress in inventory adjustments both at home and abroad as well as an improvement in overseas economies, especially, fast growth in emerging economies."
The Bank of Japan said it projects that the pace of improvement in Japan's economy is likely to remain moderate until around the middle of fiscal 2010 and gradually rise thereafter.
With regards to deflation, Japan's central bank said it "recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability. To this end, the Bank will continue to consistently make contributions as central bank. In the conduct of monetary policy, the Bank will aim to maintain the extremely accommodative financial environment."
Stocks in Tokyo, as of 12 a.m. EST Tuesday, were lower by 0.8% to 10,434.26.
-- Reported by Joseph Woelfel in New York.
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