The Bank of Japan on Tuesday slightly upgraded its growth forecast for the world's third-biggest economy but kept its super easy monetary policy unchanged.
The central bank said after a two-day policy gathering that it now expects 0.9 percent expansion in the year to March 2021, an upgrade from a previous projection of 0.7 percent.

The brighter assessment came after Prime Minister Shinzo Abe issued a stimulus package last year to prop up the economy and dampen the effects of an October hike in consumption tax from eight to 10 percent.

The decision also followed a fresh trade deal clinched between the US and China, easing a concern that had long worried global investors.

The world market has also returned to relative calm after the turmoil caused by the killing of top Iranian general Qasem Soleimani by the US the strike resulted in limited retaliation and the region has so far avoided an escalation in violence.

"Japan's economy has been on a moderate expanding trend... although exports, production and business sentiment have shown some weakness, mainly affected by the slowdown in overseas economy and natural disasters," it said. Nevertheless, the tax hike and natural disasters were weighing on domestic demand, the bank said. But demand "is likely to follow an uptrend... mainly against the background of highly accommodative financial conditions and active government spending", it added. The central bank also reiterated its pledge to continue its easy monetary programme in a drive to achieve two-percent inflation for "as long as it is necessary".

However, it dropped its inflation forecast to 1.0 percent from an earlier estimate of 1.1 percent.

The bank "will not hesitate to take additional easing measures" if necessary, it added.

BoJ governor Haruhiko Kuroda will address the media later in the day.

AFP