Bank of Japan keeps policy steady, upgrades economic outlook

The Bank of Japan opted Friday to keep its lax monetary policy intact, while noting signs of improvement in the world's third largest economy.

A statement issued by the central bank said it expects demand to accelerate, supporting a "moderate expansion." The central bank's key interest rate remains at minus 0.1 percent.

While the U.S. Federal Reserve is raising rates, Bank of Japan Gov. Haruhiko Kuroda appears determined to persist with a policy of "qualitative and quantitative easing" to help attain an inflation rate of about 2 percent.

The BOJ statement said inflation expectations in Japan remain in a "weakening phase," suggesting major policy changes are unlikely in the near future.

The central bank has injecting trillions of yen (billions of dollars) into the economy, seeking to spur demand and counter deflation. Major drivers of growth such as housing investment and public spending have remained flat, the bank said, while exports have recovered somewhat thanks to recoveries in China, the U.S. and Europe.

Still, earlier this month the government revised its estimate for real annual growth in the January-March quarter to 1 percent from a previous estimate of 2.2 percent. A key factor constraining potential demand is wages, which have remained relatively flat.