The assessment by the Bank of Japan carried on its website after its monetary policy meeting was the fifth straight monthly upgrade for the economy as the government seeks to end years of chronic deflation. The bank said it will continue its monetary easing policy.
"Japan's economy has started picking up," the BOJ said. "Exports have stopped decreasing as overseas economies have been moving out of the deceleration phase that had continued since last year and are gradually heading toward a pick-up.
"Business fixed investment continues to show resilience in nonmanufacturing and appears to have stopped weakening on the whole. Public investment has continued to increase, and housing investment has generally been picking up. Private consumption has seen increased resilience, assisted by the improvement in consumer sentiment."
In April, the BOJ had said the economy "has stopped weakening and has shown some signs of picking up."
In its latest report, the central bank, among other steps, said it will conduct money market operations so the monetary base will increase at an annual pace of about 60-70 trillion yen.
The report's outlook said Japan's economy is "expected to return to a moderate recovery path" with domestic demand remaining resilient due to the effects of monetary easing and other economic measures, and overseas growth rates gradually picking up.
"Such conduct of monetary policy will support the positive movements in economic activity and financial markets, contribute to a rise in inflation expectations, and lead Japan's economy to overcome deflation that has lasted for nearly 15 years," the bank said.