Japan central bank eyes recovery

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The Bank of Japan (BOJ) has signalled more optimism about the future of the world's second-largest economy.

"Japan's economic conditions are showing signs of recovery," it said, as it kept interest rates at 0.1%.

BOJ Governor Masaaki Shirakawa said there had been improvements in Japan's corporate financing, but that small firms still faced tricky times.

He also sounded calm about the yen, which has been rising, saying it may help the economy in the long run.

Stronger yen

"To give our general view on the yen, the short-term impact of a stronger yen would be to lower prices," Mr Shirakawa said.

"It is possible for a stronger yen to support the economy in the long run."

His comments come a day after Japan's incoming finance minister said he opposed intervention in the currency market.

The yen is up 6.7% against the dollar since June, and the authorities' inaction could be seen as surprising given that a stronger yen makes Japanese exports less competitive.

Japan recently emerged from recession in the April-to-June quarter, after four consecutive quarters of deep contraction.

The improvement came after stimulus measures totalling $260bn (£159bn) were introduced to help boost the economy

Mr Shirakawa said that the downside risks for the economy were lessening, but that the BOJ still remained cautious.