Japan's economy was already showing signs of recovering from the slump that immediately followed the devastating March 11 earthquake, Bank of Japan Governor Masaaki Shirakawa said on Wednesday.
But Shirakawa repeated that the central bank would focus on risks to the economy for the time being, signaling its readiness to loosen monetary policy further if the damage from the quake proves bigger than expected.
The BOJ will also examine at its next meeting in June what more it can do to support quake reconstruction and how it may be linked to efforts to boost Japan's potential growth, he said.
Some companies are bringing forward targets for restoring supplies and production and consumers seem less reluctant to spend than immediately after the quake, Shirakawa told a seminar.
It might not be a V-shaped recovery but there is a good chance we will feel a stronger sense of a recovery in the latter half of the current business year, he said.
But he warned that the outlook remained uncertain, adding that if the slump in manufacturing activity persists, it may dent household spending and capital expenditure.
The BOJ loosened monetary policy just days after the 9.0 magnitude earthquake and a deadly tsunami lashed Japan's northeast by doubling to 10 trillion yen ($122 billion) a pool of funds dedicated to buying assets ranging from government bonds to private debt.
It has stood pat on policy since then, on the view that the easing was sufficient to shore up sentiment and the economy will resume a moderate recovery around the autumn, once supply constraints weighing on factory output ease.
Some lawmakers have called on the BOJ to underwrite government bonds, or increase its buying of bonds from the market, to keep yields low as the government mulls big spending for quake reconstruction.
Shirakawa reiterated his opposition to such calls, saying that doing so would destabilize markets by hurting confidence in Japan's fiscal discipline.
There is no magic wand that can create something from zero, he said, warning that there was no easy fix to the challenge of balancing the need for supporting the economy and reining in Japan's huge public debt.
With interest rates stuck at zero and little effective means to bolster the economy through monetary policy, some in the BOJ wants to focus more on offering direct financial support to quake reconstruction.
Minutes of the April 28 meeting released on Wednesday showed that many BOJ policymakers were eager to consider a new move to support quake reconstruction.
Some of the members said that, in doing so, there may be room to make use of the BOJ's loan scheme aimed at encouraging banks to lend more to industries with growth potential, the minutes showed.
Sources familiar with the bank's thinking have said the board may discuss expanding the loan scheme for growth industries, put in place last year, as early as June, as total lending is nearing the 3 trillion yen ($36 billion) limit.
Shirakawa said there was room to make use of the scheme to help quake-hit firms, but that it would be discussed at the next policy review in June.
($1 = 81.920 Japanese Yen)
(Editing by Tomasz Janowski)