BOJ revises up economic forecast, keeps rates on hold

The Bank of Japan revised up its economic forecast for the current fiscal year on Thursday but reiterated that it will keep monetary policy easy, with deflation likely to persist at least until early 2011.

The central bank kept interest rates at 0.1 percent and held off on new policy initiatives as widely expected, in a unanimous vote.

Governor Masaaki Shirakawa will hold an embargoed news conference, with his comments expected to come out sometime after 4:15 p.m. (0715 GMT).

The central bank slightly revised up its core consumer price projection for the current fiscal year.

The meeting was joined by new board member Yoshihisa Morimoto, a former executive at Tokyo Electric Power Co (9501.T), who filled the final vacancy in the nine-member board.

Analysts expect Japan's economic growth to slow after it expanded by an annualised 5 percent in the first quarter, the second-fastest among G7 countries, as the boost from government stimulus measures tapers off.

Europe's debt problems and the ensuing market turmoil, which drove up the yen to a seven-month high against the dollar earlier this month, may cloud the outlook for the export-reliant economy, they say.

The BOJ has kept interest rates at 0.1 percent since late 2008, and eased monetary policy last December and again in March by setting up and later expanding a facility offering cheap funds to banks.

It issues long-term economic and price forecasts each April and October and reviews them three months later. (Reporting by Leika Kihara and Tetsushi Kajimoto)