TOKYO, March 16: The Bank of Japan is leaning towards slightly upgrading its assessment of Japan’s economy in its March report on economic and financial conditions due out next week, the Nihon Keizai Shimbun (Nikkei) said on Saturday.

But even should the central bank decide the worst could be over for some areas of the world’s second-largest economy, it is highly unlikely that this would lead to any change in monetary policy.

An upgrade by the central bank would be the first such move since July 2000 and would follow a similar upgrade issued by the Japanese government on Thursday.

According to the Nikkei, the view is growing inside the BOJ that downward pressure on the Japanese economy has eased slightly due to a budding US recovery that, in turn, is prompting improvements in exports and inventory adjustments.

However, since capital spending remains weak and instability in the capital and financial markets has yet to be entirely eliminated, the bank is not expected to alter its monetary policy, the Nikkei said.

A final decision will be made during the BOJ’s two-day monetary policy meeting that starts on Tuesday. The report is due out on Friday.

The government’s economic assessment said that signs of recovery could be seen in exports and industrial production and also upgraded its assessment on the trends in personal consumption and wholesale prices.

It also did not use the word “deteriorating” to describe the economy, ending an eight-month run in which the word was used over and over again.

The Nikkei said, however, that the BOJ is likely to take a slightly more cautious stance and that “deteriorating” is expected to remain in the report.

Data released on Thursday showed that Japan’s current account surplus had logged its second biggest rise on record in January as a budding world recovery helped curb a slowdown in exports.

The surplus was partly due to imports being restrained by weak domestic demand, while bankruptcy data for February suggested corporate failures could set a record high in the current business year to March 31.

Japan’s economy shrank in the three quarters to the end of 2001, and economists warn about becoming too optimistic about the final quarter of the fiscal year that ends this month.—Reuters