The Bank of Japan (BOJ), the country's central bank, on Friday raised its assessment of the nation's economy for the first time in more than two years as the economy has shown signs of bottoming out, while holding its key interest rate steady at 0.1 percent.

"Economic conditions have been deteriorating, but export and production are beginning to level out against the backdrop of progress in inventory adjustments both at home and abroad," the BOJ said in a statement.

"Going forward, although domestic private demand is likely to continue to weaken, exports and production, after leveling out, are expected to start recovering and public investment to increase," it said.

It said the baseline scenario through fiscal 2010 projects that the economy will start recovering and the rate of decline in prices will moderate from the latter half of fiscal 2009.

Meanwhile, the central bank's Policy Board decided by unanimous vote to keep the target rate for unsecured overnight call money on hold at 0.1 percent, a move widely expected.

It also decided to accept bonds issued by the governments of the United States, the United Kingdom, Germany and France as eligible collateral.

BOJ had expanded the range of eligible collateral since last autumn to ensure stability in financial markets by further facilitating money market operations.

(Xinhua News Agency May 22, 2009)