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 But the central bank is likely to remain under pressure to expand
its already massive asset-buying program as slumping energy costs,
weak exports, and a fragile recovery in household spending keep
inflation well short of its 2 percent target.
In a twice-yearly outlook report, the BOJ cut its rosy price
forecasts and pushed back by around six months the expected timing
for hitting its 2 percent inflation target.
The report also warned that overseas headwinds, such as China's
slowdown and sluggish emerging market demand, posed "strong downside
risks" to Japan's economic outlook.
BOJ Governor Haruhiko Kuroda, however, maintained his optimism that
the economy will sustain a moderate recovery as exports and output
pick up.
"The timing for achieving the price target has been delayed but this
is largely due to the effect of energy price falls," Kuroda told a
news conference.
"The price trend is improving steadily and inflation is likely to
head toward 2 percent as the effect of oil price falls dissipates,"
he said.
At Friday's meeting, the BOJ maintained its pledge to increase base
money, or cash and deposits at the central bank, at an annual pace
of 80 trillion yen ($662 billion) through aggressive asset
purchases.
The BOJ said it now expects consumer inflation to reach 2 percent in
the latter half of next fiscal year, instead of the earlier
projected April-September first half of that year.
GLIMMER OF HOPE
Japan's economy contracted in April-June and may shrink again in
July-September on weak exports. Many analysts say any rebound in the
current quarter will be too weak for the BOJ to achieve its 2
percent inflation target next year.
Economists were split on whether the BOJ will pull the policy-easing
trigger on Friday, although market bets leaned toward no action
after a recent run of positive data.
Core consumer prices fell 0.1 percent in the year to September, a
second monthly drop, while household spending slid even as job
availability hit a two-decade high, data showed on Friday.
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Some BOJ policymakers have worried that sluggish demand in emerging
Asian markets could hurt both output and corporate confidence badly
enough to delay planned capital investment and wage hikes.
Those concerns eased somewhat after data on Thursday showed factory
production rose 1.0 percent in September.
BOJ officials have said economic conditions are much better now than
last October, when it surprised markets by easing policy after
spending took a direct hit from a sales tax hike, and companies were
in no mood to raise wages.
But wage growth remains subdued and households are reluctant to
spend due to the rising cost of living from a weak yen, which drives
up import prices.
The BOJ considers "shunto" wage hike negotiations between business
and labor unions, which kick off from year-end, as key to whether
inflation will accelerate sustainably.
"I expect the BOJ to be on hold for the rest of the year," said Koya
Miyamae, senior economist at SMBC Nikko Securities.
"If it was to take action this year, that would be to support wage
hikes at 'shunto' and the best time to do so should have been this
month."
($1 = 120.8700 yen)
(Additional reporting by Stanley White, Tetsushi Kajimoto, Kaori
Kaneko, Hideyuki Sano and Joshua Hunt; Editing by Eric Meijer)
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