The Bank of Japan held off more easing measures after a policy meeting today, despite flatlining inflation that is defying a two-year-old stimulus, but analysts expect further loosening as the economy struggles.
In a widely expected decision, the central bank held steady on its record easy money programme.
This is adding about 80 trillion yen ($672 billion) to the money supply every year in a bid to jack up prices and kickstart growth.
One Bank of Japan board member lost his call to shrink the stimulus programme by nearly half, with his eight colleagues voting to stay the course.
The announcement came hours after data showed Japan's factory output fell by a less than expected 0.3% in March - tepid figures that highlight an anaemic recovery in the world's number three economy.
Meanwhile, the Bank of Japan also trimmed its growth and inflation expectations for the current fiscal year, as a slate of tepid data highlight weakness in the world's number three economy.
In a semi-annual report, the bank said it expects Japan's gross domestic product to expand 2% in the year to March 2016, while the inflation rate would come in at 0.8%, down from an earlier estimate of 2.1% and 1% respectively.
Economists have said the Bank of Japan will further loosen monetary policy, likely later this year, to bring Japan closer to its 2% inflation target, which is a cornerstone of Prime Minister Shinzo Abe's drive to conquer stagnant or falling prices and revive the economy.
Bank Governor Haruhiko Kuroda has previously acknowledged that dragging Japan out of years of deflation was proving to be "very challenging", and he warned that inflation may temporarily fall to zero.
In October, the bank shocked markets when it inflated its asset-buying stimulus plan by as much as 20 trillion yen annually, bringing it to the current 80 trillion yen level.
Deflation may sound good for Japanese consumers, but it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.
That, in turn, hurts producers and holds back their expansion and hiring plans, which is bad news for the economy.to rise and hope they might even get goods cheaper down the line.
