LEAD: BOJ raises economic assessment, holds key rate at 0.1%+

TOKYO, Sept. 17 Kyodo -
(EDS: ADDING INFO IN 5TH GRAF, CLARIFYING 4TH GRAF)
The BOJ's eight-member Policy Board also voted unanimously to leave the central
bank's key interest rate unchanged at 0.1 percent at a two-day policy meeting.
The central bank last cut its target rate for unsecured overnight call money in
December, lowering the rate from 0.3 percent.

''Japan's economic conditions are showing signs of recovery,'' the central bank
said in a statement, citing increased exports and output against a backdrop of
progress in inventory adjustments and a recovery in overseas economies,
especially emerging economies.
On financial conditions, BOJ Governor Masaaki Shirakawa said at a press
conference, ''Moves toward improvement are spreading.'' He said the environment
for companies to issue commercial paper and corporate bonds is improving
although financial condition remains somewhat severe for small and medium-sized
companies.
His comments came a day after Japan's new minister in charge of financial
affairs, Shizuka Kamei, severely criticized banks for being reluctant to lend
and too forceful in withdrawing money from small corporate borrowers, a move
that met with rebuttals from the banking industry. The new minister proposed
introducing a three-year moratorium on loan payments for small companies to
help prevent bankruptcy.
As to the new administration led by the Democratic Party of Japan, which has
secured power for the first time since it was established, Shirakawa expressed
hope that the government will ''adequately'' handle the various challenges
facing the Japanese economy but declined to comment specifically on the stance
of new ministers on financial matters, including Kamei's proposal.
The BOJ's latest economic assessment represents an upgrade from last month when
it said economic conditions had ''stopped worsening.''
The bank continued to project that Japan's economy will start recovering from
the latter half of fiscal 2009, beginning in October.
But the BOJ maintains a cautious stance on the prospects for the economy,
Shirakawa said.
''The current recovery is largely supported by stimulus steps and the progress
in inventory adjustments,'' he said. ''We are yet to be confident,'' in the
strength of private demand once the favorable effects of those steps run their
course.
Japan's gross domestic product expanded for the first time in five quarters in
the April-June period, with annualized real growth of 2.3 percent.
But the unemployment rate hit a record high of 5.7 percent in July, while the
average monthly salary continued to fall for the 14th straight month. Consumer
prices also kept falling at the fastest pace on record in the same month,
raising fears of deflation.
Although ''there are signs of a better-than-projected recovery in emerging
economies, risks to the economy are still on the downside,'' the BOJ said.
The BOJ must decide on whether to continue or terminate its temporary measures
of buying corporate debt from banks and providing them with unlimited
low-interest loans beyond the scheduled expiration of the measures at the end
of the year.
In July, the BOJ's Policy Board decided to extend the measures for three months
from the previous deadline of Sept. 30 to Dec. 31, judging that corporate
financing conditions remain severe.
On recent record falls in consumer prices, the BOJ said the pace of the decline
is likely to moderate later this fiscal year due to the fading effects of
record-high oil prices a year earlier.
==Kyodo