The Bank of Japan maintained its stance that the nation's economy is picking up, but does not yet have the momentum for a self-sustained recovery in its monthly report released on Wednesday. The bank said that the increase in exports is likely to continue as conditions improve for overseas economies, but will probably moderate in the near future. Earlier on Wednesday, a report showed that exports had grown year on year for the first time since September 2008. The report also said "public investment is likely to decrease gradually." On the issue of deflation, which has threatened to derail the recovery in Japan, the bank said: "the year-on-year pace of decline in consumer prices is likely to moderate, mainly because the prices of petroleum products are expected to exert an upward pressure." On the financial environment, the bank said that there are continued signs of improvement. On Tuesday, the BOJ announced that it would leave the key overnight call interest rate at 0.1 percent, virtually zero, to support the recovery in the financial sector. After a two-day meeting, the bank also maintained its view that the economy is picking up. In a report released Wednesday, Kyohei Morita of Barclays Capital said that it was likely the BOJ may need to take further action in the coming months in order for Japan to maintain its recovery. "If the yen surges and share prices come down, the BOJ could easily come under pressure to take further action," Morita noted. Morita suggested that the bank may choose to extend a three- month cash injection policy that it started in December to improve liquidity in financial markets, and may choose to also "make a clearer commitment to prolonged accommodation" in order to maintain price stability.

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