By Leika Kihara
TOKYO (Reuters) - Japan's economy appears to have hit bottom and is eyeing a recovery from the damage caused by the coronavirus pandemic, its finance minister said, underscoring cautious optimism spreading among policymakers after the relaxation of lockdown measures.
The remarks come ahead of next week's rate review by the Bank of Japan, which is likely to hold off on expanding stimulus and stick to its view the world's third-largest economy is headed for a gradual recovery.
"We've succeeded in putting a floor on the economy, which seems to have hit bottom. How strong the recovery will be depends not just on domestic conditions but overseas developments," Finance Minister Taro Aso told parliament on Friday.
He added that conditions surrounding Japan's economy will remain "severe" for the time being due to risks such as the chance of a second wave of infections.
Late on Friday, Japan's parliament is set to pass a record second supplementary budget that will partly fund a $1.1 trillion stimulus package aimed at getting activity back on track after the health crisis.
Aso rebuffed the idea of compiling a third extra budget, saying it was premature to discuss it.
"We first have to see how the measures we've taken so far affect the economy," he said.
Prime Minister Shinzo Abe declared a state of emergency in April, requesting businesses to close and citizens to stay home, a move that dealt a severe blow to company profits and consumption.
While the state of emergency was lifted in late May, analysts expect economy suffered more than a 20% annualised contraction in the current quarter, after having slipped into recession in January-March.