Japanese consumers are key to a continuing recovery

The Bank of Japan said in its monthly economic health check that a jump in exports had lifted business investment, while domestic demand had also firmed.

"Japan's economy is expected to gain further momentum gradually," it said.

The Bank added that it would keep short-term interest rates effectively at zero, as widely expected.

The report comes days after official data showed that the economy grew at an annual rate of 5.6% during the first three months of the year.

The figures, which comfortably outstripped analysts' forecasts, marked Japan's eighth consecutive quarter of growth.

Tighter money

Mounting evidence of a recovery has triggered speculation that the Bank of Japan, which has adopted an ultra-loose monetary policy in an effort to kick-start the economy, may tighten its stance sooner than expected.

Its officials have previously signalled that rates will not rise until Japan's chronic deflation - where falling prices act as a brake on consumer spending - is over.

But the Bank suggested on Thursday that while the soaring cost of oil and other commodities had helped counteract deflation, there is as yet little sign of a sustained increase in prices.

"The year-on-year rate of change in consumer prices, excluding fresh food, has been close to zero, while temporary factors have exerted upward pressure on prices," it said.

Figures out on Tuesday showed that the broadest measure of Japanese prices fell by 2.6% in the first quarter.

Some analysts believe the Bank may in fact loosen monetary policy further in the months ahead if higher oil prices or an abrupt slowdown in China start to weigh on global growth.