The bank of Japan (BoJ) upgraded its economic outlook, taking cues from a strong recovery in exports and industrial output, but refrained from making any change to the monetary policy.

Governor Masaaki Shirakawa said the economy will gradually get out of a situation in which economic improvement has slowed down, Nikkei reported. He said the economy will hit a moderate recovery track.

BoJ's board decided to keep its key policy rate unchanged at a range between zero and 0.1 percent.

Japan's economy is gradually emerging from the current deceleration phase, the BoJ statement said. As the growth rate of the global economy has started increasing again led by emerging and commodity-exporting economies, Japan's exports and production are showing signs of resuming an uptrend.

On Monday, Japan's Cabinet Office said gross domestic product (GDP) growth rate fell 1.1 percent in the fourth quarter of 2010 on annual basis, recording its first contraction in five quarters.

The GDP fell 0.3 percent in the October-December period last year compared with the previous quarter, giving away the world's number two economy tag to China.