The Bank of Japan has left its economic assessment unchanged for August after saying the economy has "almost stabilised".
But it warned of increased risks from the global economy, as well as from the stock and forex markets.
"Japan's economy, despite persistent weakness in domestic demand and increasing uncertainty regarding the global economy, has almost stabilised as a whole with exports and production continuing to increase," it said.
However, the bank warned: "Stock prices in the US and worldwide as well as the US dollar remain volatile and firms' outlook for the global demand for IT-related goods has become rather cautious.
"Further destabilisation in the foreign exchange and financial markets at home and abroad could easily exert a negative influence on the economy," it said, through the impact on the key export sector.
"The upward trend in exports is expected to continue against the background of the gradual recovery in overseas economies, although the pace is likely to slow as the impetus from overseas restocking weakens".
AFP