BoJ sees light at end of very dark tunnel

The Bank of Japan kept its key overnight lending rate at 0.10% as expected on Friday but offered some relatively upbeat comments and raised its assessment on the economy for the first time in almost three years.

The BoJ said in its statement, "Economic conditions have been deteriorating, but exports and production are beginning to level out against the backdrop of progress in inventory adjustments both at home and abroad. Financial conditions have remained tight, although there has been some easing of tension compared to some time ago."

It added that the pace of deterioration in economic conditions is likely to moderate gradually, leading to a leveling out of the economy. In April, the central bank noted that conditions had deteriorated significantly.

Japan has seen its GDP shrink at an annualized in excess of 14% during the last two quarters but recent data do confirm the BoJ's latest assessment. Nevertheless, the country is heavily dependent on overseas sales and has been struggling since the early 1990s when its real estate bubble burst, saddling the major banks with plenty of problem loans.

Japan's economy may be flattening but solid growth is unlikely unless the global economy picks up dramatically. China seems to be showing signs of life, according to government figures, but Europe and the US are lagging.