Tokyo  - Japan's central bank on Tuesday held its key short-term interest rate steady at 0.1 per cent, noting that while bright spots have emerged for the world's second-largest economy, business investment was declining and consumer spending was weak.

"Japan's economic conditions have stopped worsening," the central bank said at the end of a two-day meeting of its policy board. "Public investment is increasing, and exports and production are picking up. On the other hand, business fixed investment is declining sharply, mainly reflecting weak corporate profits."

Inflation has declined, and consumer spending had shown an uptick, primarily because of government stimulus measures, but "remains generally weak amid the worsening employment and income situation," it said.

The bank said is expected Japan to emerge from its worst postwar recession is the second half of the current fiscal year, which ends March 31.

"The bank, paying attention for the time being to the downside risks to economic activity and prices, will continue to exert its utmost efforts as the central bank to facilitate the return of Japan's economy to a sustainable growth path with price stability," it said. (dpa)