Japan's government warned on Wednesday that the yen's strength could hurt the economy -- but it maintained its forecast of a moderate recovery.
Separately, the central bank kept its monetary policy unchanged and stuck by its own assessment that the world's second-largest economy is improving.
The government's Cabinet Office report said the nation's recovery will continue due to a strong global economic rally, though exchange rates could endanger growth. It was the first time since April that the report mentioned currency rates as a risk factor.
A strong yen is generally viewed as a threat to growth because it makes Japanese exports more expensive abroad and chips away at exporters' overseas earnings when they are converted into yen.
After staying relatively stable for much of last year, the yen's value has surged in recent weeks, partly on expectations that European and U.S. officials may increase pressure on Asian countries to let their currencies strengthen against the U.S. dollar.
The dollar bought 102.35 yen late Wednesday on the Tokyo foreign exchange market, down 0.26 yen from late Tuesday but above the 102.31 yen it bought in New York overnight.
The Cabinet Office report maintained its assessment that industrial production is weakening. Private spending -- which makes up more than half of Japan's economic activity -- has recently been slowing despite a continued pickup in consumer sentiment, the report said. Exports are weakening while imports are leveling off, it said.
The Bank of Japan downgraded its view on the economy last month, but said in its January report that it was recovering, despite some continuing weaknesses in industrial production.
The bank also decided Wednesday, at the end of a two-day policy board meeting, to leave its liquidity target in a range of 30 trillion yen to 35 trillion yen ($293 billion to $342 billion), letting ample cash flow through the financial system in a bid to promote a delicate recovery. The decision was in line with market expectations.
The Bank of Japan has kept interest rates virtually at zero for the past three years, and is keeping extra cash in the system as the economy struggles to rebound after more than a decade of stagnation. The bank last changed the policy in January 2004, when it raised the liquidity target by 3 trillion yen ($29 billion).