The Bank of Japan said Wednesday in a semiannual economic outlook report that the nation's economy will "continue its recovery" in fiscal 2004.

The BOJ upgraded its economic evaluation by eliminating the reference to a "gradual" recovery that was in the last report, released in October.

In the outlook, the BOJ's nine-member Policy Board predicted annual growth of gross domestic product for fiscal 2004 in a range between 2.9 percent and 3.5 percent, up from between 2.0 percent and 2.8 percent predicted in the October report.

The report says strong exports to China and the United States are likely to lead the nation's economic recovery.

The report is a benchmark for the central bank to conduct its financial policy.

The BOJ predicted business investments would increase mainly in the manufacturing sector, and household consumption is expected to recover at a moderate pace.

BOJ Gov. Toshihiko Fukui told a news conference Wednesday, "The nation's economy will continuously recover, backed by growing production of goods and increasing corporate profits."

Consumer prices in fiscal 2004 are projected to decline on a year-on-year basis, despite price increases in such materials as oil, iron and steel, Fukui said.

Backed by rising profits and growing productivity, companies will try to maintain price levels of finished goods, he said.