Bank of Japan Governor Masaaki Shirakawa on Monday reiterated that Japan's economy is likely to return to a recovery path once supply constraints caused by last month's earthquake and tsunami ease, and as exports grow.
He also said the quake was unlikely to pose a threat to Japan's banking system, although the central bank will carefully monitor developments.
Japan's economy is likely to remain under strong downward pressure for the time being, mainly in production, Shirakawa said in a speech to a meeting of the BOJ's regional branch managers.
But as supply constraints ease and output recovers, growth in exports ... is expected to help the economy return to a moderate recovery path, he said.
The comments toed the line presented by the BOJ last week, when it kept monetary policy steady but cut its economic assessment to say Japanese growth would remain under downward pressure for some time.
The BOJ last week launched an ultra-cheap loan scheme for banks in the area devastated by the quake, and has signaled its readiness to ease monetary policy further if damage from the quake threatens Japan's return to a moderate recovery.
After the regional branch managers' meeting, the central bank will release a quarterly report on the regional economy at 2:30 p.m. (0530 GMT) that includes references to the quake-hit northeast.
Branch managers from regions that are home to big carmakers and other manufacturers, such as Osaka and Nagoya, as well as the head of the Sendai branch hit by the quake, will also hold a news conference.
The assessments of the regional economy will be taken into account when the BOJ reviews its long-term economic forecasts, to be issued in its twice-yearly outlook report on April 28.
Markets are closely watching for clues on how the BOJ will reflect damage from last month's quake, which triggered the world's worst nuclear safety crisis in 25 years as well as power supply shortages in the Tokyo area, in the semiannual report.
The BOJ is seen sharply cutting its growth forecast for the fiscal year that began in April, although the dominant view within the bank is that the economy will narrowly escape a contraction for the year.
The central bank is expected to project a rebound in economic growth in the next fiscal year to March 2013, said sources familiar with the bank's thinking.
In January, the BOJ projected Japan's economy would grow 1.6 percent in fiscal 2011/12 and expand 2.0 percent the following year.
(Additional reporting by Leika Kihara; Editing by Edmund Klamann)