TOKYO - Japan's central bank on Thursday said it would maintain its ultra-loose monetary policy as the virus-hit economy gradually picks up, with no big changes announced the day after new Prime Minister Yoshihide Suga took office.

Suga has pledged to continue the policies of former leader Shinzo Abe, whose signature "Abenomics" programme included vast government spending, massive monetary easing and the cutting of red tape.

The Bank of Japan kept its negative interest rate of 0.1 percent on bank deposits, as well as its policy of unlimited purchases of Japanese government bonds, to ensure their 10-year yields remain around zero percent.

It said in a statement it would closely monitor the impact of the coronavirus pandemic on the world's third-largest economy, "and will not hesitate to take additional measures if necessary".

The bank was slightly more upbeat in its evaluation of the economy's health than in July, although it warned that the overall outlook was rocky.

"Japan's economy has started to pick up with economic activity resuming gradually, although it has remained in a severe situation due to the impact of the novel coronavirus at home and abroad," it said.

While there has been a slow rise in consumption, "the pace of improvement is expected to be only moderate while the impact of Covid-19 remains worldwide", it warned.

In its July quarterly report, the bank said Japan's economy will contract 4.7 percent in the year to March 2021, projecting a recovery the following year but adding that deep uncertainty remains.

The economy shrank 7.9 percent in the second quarter of this year -- the worst figure since comparable data became available in 1980.

It was in recession even before the coronavirus hit owing to damage from a powerful typhoon last year, and a sales tax hike in October.

© Agence France-Presse