The Bank of Japan has today left its key interest rate unchanged and maintained its view that the world's third-largest economy was picking up.
But it but dashed hopes for fresh easing measures.
The bank, which made the announcement after a two-day policy board meeting, said the vote to keep rates unchanged at between zero and 0.1% was unanimous.
Earlier, the bank warned that Europe's sovereign debt problems and global commodity prices remained a concern
It added that the key US economy was "improving moderately."
"Japan's economic activity has shown some signs of picking up, although it has remained more or less flat," the Bank of Japan said in a statement.
The battle against the stubborn deflation that has haunted the nation's economy for years would continue, the bank warned. Falling prices cut into corporate profits, leading firms to slash jobs and put off capital investment that generates growth, while also encouraging consumers to delay purchases.
"The bank recognises that Japan's economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability," it said. The statement added that the Bank of Japan would "pursue powerful monetary easing, and will support private financial institutions in their efforts to strengthen the foundations for Japan's economic growth."
Japan's finance minister Jun Azumi also said he hoped the central bank would "act appropriately" by reaching into its policy bag to help fuel economic growth. "I believe this is an important month for us to build a solid base for the economy this year so it can make a further leap forward," he told a regular news briefing.
Last month, the bank boosted a loan programme by 2 trillion yen ($24.5 billion) to 5 trillion yen amid reconstruction efforts seen as crucial to reviving the economy, which was hammered by last year's quake-tsunami disaster and flooding in Thailand.
In February it said it would increase an asset purchase programme by 10 trillion yen to about 65 trillion yen, while it has also announced a one-year extension to a loan programme for banks in areas hit by the March 11 quake-tsunami.
Today's meeting came amid efforts to fill two vacancies on the bank's policy board after Japan's upper house of parliament last week voted down the nomination of an economist who was not in favour of further monetary easing.
The country has seen a mixed bag of economic data lately, reporting yesterday that it swung back to a surplus in February's current account, a key measure of international trade, but confidence among Japan's manufacturers remains weak.
