The Cabinet Office in its monthly economic report said the economy "is showing movements of picking up recently, while weakness can be seen in some areas."
In raising its assessment, the report said higher stock prices and a weaker yen have shored up business sentiment, encouraging some companies to boost investment and hire more workers, Kyodo News reported.
In a similar upward revision last month, the Cabinet Office said the economy is "bottoming out."
The government has made its top priority to lift Japan's economy out of its chronic deflation.
Friday's report noted that data indicated that domestic capital spending grew from the previous quarter through December and industrial production had been trending upward amid hopes for economic recovery.
Japan's economy grew at an annual 0.2 percent rate in the October-December quarter, the first such expansion in three quarters.
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