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TOKYO - The Bank of Japan on Thursday said it expected the world's third-largest economy to expand by 2.2 percent in the fiscal year through March 2013 as it held off ushering in fresh stimulus.
The forecast from the BoJ, which kept rates and a 70 trillion yen ($880 billion) asset-purchase programme unchanged following a two-day policy meeting, was slightly lower than its April outlook of 2.3-percent growth.
The central bank kept its 1.7 percent growth forecast for the next fiscal year unchanged, but warned that uncertainty in overseas markets, including Europe and the United States, could be a drag on Japan's economic recovery.
"Japan's economic activity has started picking up moderately as domestic demand remains firm mainly supported by reconstruction-related demand" following last year's quake-tsunami disaster, it said in a statement.
"(But) there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem...(and) the momentum toward a recovery for the US economy".
The bank's decision not to usher in further stimulus may surprise some dealers who had expected new policy measures after interest rate cuts last week by the European Central Bank and China's central bank.
Brazil Wednesday cut its rate to a record low, while on Thursday South Korea's central bank unexpectedly cut its key interest rate for the first time in more than three years.
Japan's economy was hammered last year by the natural disasters that left more than 19,000 dead and wreaked havoc with industrial production, while flooding in Thailand later in the year also hurt growth.
A strong yen has weighed on the country's export-oriented economy amid worries about shipments to Europe, a key market for Japanese products.
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