The Bank of Japan on Tuesday lifted its view of the economy for the first time in over a year, as the sliding yen boosts exports, offering some hope for Tokyo's stuttering growth programme.
Policymakers held fire on further stimulus and said they would maintain a plan to keep the yield on government 10-year bonds around zero, part of a broader bid to stimulate growth in the world's number three economy.
The bank's final meeting of 2016 came on the heels of stronger-than-expected November export data and the first rise for more than a year in its closely watched Tankan survey of business confidence.
"The drop in the yen has given the bank some flexibility," said Toshihiko Sakai, a senior dealer at Mitsubishi UFJ Trust and Banking.
"It's taken pressure off the BoJ to ease more."
Bank governor Haruhiko Kuroda said things were looking brighter as exports and factory output gather steam -- the bank said they were "sluggish" in a November statement.
That was its first upgrade to its view on the economy since May 2015.
The negative impact of a slowdown in emerging economies and Britain's vote to exit the European Union were fading, Kuroda said.
"There were headwinds in the first half of the year, but they've now disappeared," he added.
Japan has been on an unsure recovery path and the central bank remains way behind reaching a two percent inflation target that is a cornerstone of government efforts to revive the economy.
There are also questions about whether the BoJ can keep buying government bonds at the current pace without shocking debt markets.
- 'Strong easing' -
Kuroda on Tuesday brushed aside talk about tapering the BoJ's massive 80 trillion yen annual asset-purchase scheme and suggested there was no limit to what measures the BoJ can take.
"We have to press on with strong monetary easing to reach the inflation target as early as possible," he said.
"I do not subscribe to the view that policies face limits, like walls standing in the way."
The yen has tumbled against the greenback since Donald Trump's shock US presidential election win in November fanned speculation that his plans for big government spending and tax cuts will force the Federal Reserve to hike borrowing costs.
The Fed's indication last week that it could lift them three times next year sent the dollar surging against the Japanese unit.
That is good news for Japan's exporters as a weak yen boosts their competitiveness and profitability.
On Tuesday, the dollar bought 118.06 yen from 117.07 yen earlier in the morning.
Kuroda said the yen's level against the dollar was "not surprising", noting it brought the rate back to where it was earlier this year, before Brexit.
Investors tend to buy Japan's currency to shield themselves in times of turmoil.
The central bank's upbeat tone comes as Prime Minister Shinzo Abe's big-spending, easy-money plan to kickstart growth falters.
Tokyo this month downgraded its July-September growth estimate to 0.3 percent, from an initial 0.5 percent reading.
The cut underlined the challenges in reviving an economy plagued by a deflationary price spiral that hurt activity for years.
For more than three years, BoJ policymakers have embarked on a bond-buying stimulus programme to try to keep interest rates ultra-low and increase borrowing and spending.
Last month, the central bank said it expects to hit two percent inflation by March 2019 -- four years later than its original target and the latest in a string of delays.
The BoJ hoped consumers would spend more if prices were rising, persuading firms to expand operations and getting the economy humming.
But wage growth has fallen below expectations, meaning workers have less money to spend. Abe's promises to cut through red tape -- the key third plank of Abenomics -- have also been slow in coming.