The Bank of Japan has held off on expanding its massive stimulus programme, preferring to preserve its dwindling policy options in the hope that the economy can overcome the drag from China's slowdown without additional monetary support.
But the central bank is likely to remain under pressure to expand its already massive asset-buying programme as slumping energy costs, weak exports, and a fragile recovery in household spending keep inflation well short of its 2% 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% 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," Mr Kuroda told a news conference.
"The price trend is improving steadily and inflation is likely to head toward 2% as the effect of oil price falls dissipates," he said.
At today’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 (€602bn) through aggressive asset purchases.
The BOJ said it now expects consumer inflation to reach 2% in the latter half of next fiscal year, instead of the earlier projected April-September first half of that year.
