The Bank of Japan held off from expanding monetary stimulus today, defying market expectations for action as soft global demand, an unwelcome yen rise and weak consumption threatened to derail a fragile economic recovery.
The yen soared and Japanese stocks slumped after the Bank of Japan announcement caught investors off guard.
The Bank of Japan decided to maintain its pledge to increase base money at an annual pace of 80 trillion yen ($732 billion) via aggressive asset purchases.
It also left unchanged a 0.1% negative interest rate it applies to some of the excess reserves that financial institutions park at the bank.
In a separate move, the Bank of Japan created a 300 billion yen loan programme offering funds at zero interest to financial institutions in areas hit by this month's earthquake in southern Japan.
In a quarterly review of its projections, the bank cut its inflation forecasts today.
It also pushed back the timing for hitting its 2% price target by six months, saying it may not happen until March 2018 at the latest.
But the Bank of Japan maintained its optimism that the economy will expand moderately as a trend.
The bank's decision came in the wake of data that showed consumer prices slipping in March at the fastest pace in three years and household spending falling at the fastest pace in a year, adding pressure on it to do more to spur growth.
The Bank of Japan had stunned markets in January by adding negative rates to its massive asset-buying to prevent external headwinds from threatening the achievement of its price goal.
But January's move has failed to boost stock prices or arrest an unwelcome yen rise, keeping the bank under pressure to do more to revive an economy verging on recession.