The Bank of Japan kept monetary policy steady and gave a more upbeat view of the economy on Tuesday. The moves reinforced market expectations that the central bank's future policy direction could be an increase in interest rates.

The bank also upgraded its language to signal its confidence that the economy is headed for a steady recovery.

In addition, the BOJ maintained its pledge to guide short-term rates at minus 0.1 percent and 10-year government bond yields around zero percent.

The BOJ said at its previous meeting in November that the trend was for moderate recovery, but slowing emerging market demand was weighing on exports and output.