Bank of Japan Governor Masaaki Shirakawa said Wednesday that downside risks to the Japanese economy have been receding compared with the situation in the spring and that the economy is likely to pick up in coming years supported by the growth of emerging economies.

"Given that the emerging and commodity-exporting economies are likely to continue growing at high rates, risks are becoming balanced, compared with the situation in early spring when risks were generally tilted downside," the BOJ chief said in a speech in Tokyo.

Shirakawa said that the Japanese economy had been facing a series of downside risks such as the waning effects of domestic stimulus packages, the weak employment and income situation, as well as the moderate pace of the global economic recovery.

But such downside risks could be eased by the possible continuation of the high rate of growth of emerging and resource-rich economies, the governor added.

"What worries me the most is the possible consequences of balance- sheet adjustments in the United States and Europe, as well as developments in the emerging and commodity-exporting economies," he said.

Despite the somewhat rosy outlook, Shirakawa reiterated the BOJ's intention of supporting the economy through an easy monetary policy.

"The Bank will provide steady support for Japan's economy to return to a sustainable growth path with price stability, by maintaining the extremely accommodative financial environment," he said.

In the central bank's "Outlook for Economic Activity and Prices" report released last Friday, the BOJ forecast that the nation's real gross domestic product will shrink 3.2 percent in fiscal 2009. GDP is then expected to expand in the following two years at a pace of 1.2 percent in fiscal 2010 and 2.1 percent in fiscal 2011.

In the report, the BOJ also projected Japan will experience three years of deflation, although Shirakawa said in his speech that the risks of the country falling into a deflationary spiral are small.

"The Bank judges that, at present, it is unlikely that the decline in prices will induce downward pressure on economic activity," he said.

The BOJ projects Japan's core consumer prices, excluding volatile fresh foods, to fall 1.5 percent in fiscal 2009 from the previous year, 0.8 percent in fiscal 2010, and 0.4 percent in fiscal 2011.