The Bank of Japan (BOJ), in addition, after its two-day policy-setting meeting, opted to leave unchanged its ultraloose monetary policy to prop up the ailing economy, which has been repeatedly battered by the effects of surging COVID-19 cases.
The bank said in a report that it forecast the core consumer price index, excluding volatile fresh food items, would increase 1.1 percent in fiscal 2022. This is an upward revision from an initial projection of a 0.9 percent increase.
The economic growth outlook for fiscal 2022 was also raised by the central bank from an initial 2.9 percent forecast in October to 3.8 percent.
"A pickup in Japan's economy has become evident as the impact of COVID-19 at home and abroad has waned gradually," the BOJ said in the quarterly outlook report.
This compares to the BOJ's previous view that Japan's economy was in a "severe state due to the pandemic, though it had picked up as a trend."
The upward revision by the BOJ comes despite the nation continuing to grapple with the rapid spread of the Omicron variant of the coronavirus, which will see Japan's capital and 10 other prefectures possibly put under a quasi-state of emergency, a move that will once again hammer the service and transportation sectors, among others, in the affected areas.
The central bank's policy board at the conclusion of its two-day meeting, meanwhile, also decided that the continuation of its short-term policy rate of minus 0.1 percent would be kept, and long-term yields maintained at close to zero percent.
The BOJ also upgraded its view on risks to prices based on embryonic signs of inflation.
It said they are "generally balanced," compared to its previous view that they were "skewed to the downside."
The CPI upgrade to 1.1 percent for 2023 from a previous projection of 1.0 percent, however, is still a long way off the bank's lofty 2.0 percent inflation target.
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