 "BOJ keeps policy steady despite signs of recession")
The Bank of Japan held off on expanding stimulus on Wednesday, even as slumping exports and falling oil prices threaten its rosy projection that the economy is on track to hit the bank's ambitious 2% inflation target next year.
But lingering fears of recession will keep the central bank under pressure to ease at a more crucial meeting on Oct 30, when it is expected to cut its long-term economic and price forecasts, analysts say.
BOJ Governor Haruhiko Kuroda remained bullish that the bank's massive money-printing will eventually lift the world's third-biggest economy decisively out of nearly two decades of deflation.
"The trend of consumer rises is rising steadily," he told a news conference after the BOJ maintained its pledge to increase base money at an annual pace of 80 trillion yen ($700 billion) through aggressive purchases of assets such as government bonds.
"There is absolutely no change to our stance that we will steadily implement quantitative and qualitative easing to achieve the 2% inflation target at the earliest possible time."
Kuroda said he expects to hit the inflation target around the six months from next April but that this could depend on oil prices, which have slumped sharply since mid-2014.
The BOJ maintained its optimistic view that while exports and output have been hurt by slowing emerging market growth, Japan's economy continues to recover moderately.
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"The decision came as expected. I still expect the BOJ will ease policy further later this month," said Yasunari Ueno, chief market economist at Mizuho Securities.
"If the BOJ stands pat later this month even as cuts its bullish forecasts, investors would take it as a sign its commitment to hit 2% inflation has weakened," he said.
Japan's economy shrank in April-June and some analysts expect another contraction in July-September on slumping global demand and weak consumption.
Core consumer prices slid in August from a year earlier, the first drop since the BOJ deployed its massive stimulus programme more than two years ago, casting doubt on whether heavy money printing alone can accelerate inflation to 2%.
In a semi-annual review of its forecasts on Oct. 30, the BOJ is set to slash its economic growth forecasts and push back the timing for achieving its price target, sources say.
The BOJ now expects inflation to hit 2% by around September next year, a forecast many analysts criticise as too ambitious.
A Reuters poll in early September, before the recent spate of weak data, showed most economists did not expect further easing until 2016.
($1 = 120.1800 yen)