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The Bank of Japan kept its monetary policy unchanged on Wednesday, but downgraded the inflation forecasts, primarily driven by a sharp fall in oil prices.
The Policy Board of the BoJ voted 7-2 to purchase government bonds so that the yield of 10-year JGBs will remain at around zero percent.
The board maintained interest rate at -0.1 percent on current accounts that financial institutions maintain at the bank.
The central bank said it will conduct purchases of Japanese government bonds in a flexible manner so that the outstanding amount will increase at an annual pace of about JPY 80 trillion.
The bank asserted that it will maintain the current extremely low interest rates for an extended period of time, reflecting the uncertain economic outlook and prices, including the impact of the consumption tax hike scheduled for October next year.
The BoJ said it will continue with "Quantitative and Qualitative Monetary Easing with Yield Curve Control" policy, aimed to attain the inflation goal of 2 percent, and to maintain that target in a stable manner.
The bank reiterated that it will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index, or CPI, exceeded 2 percent and stayed above the target in a stable manner.
In its quarterly outlook report, the BoJ said "the momentum toward achieving the price stability target of 2 percent is maintained but is not yet sufficiently firm, and thus developments in prices continue to warrant careful attention."
The BoJ noted that the Japanese economy was "expanding moderately", with risks to economic activity and prices skewed to the downside.
The central bank said the Japanese economy is projected to continue its expanding trend through fiscal 2020.
Overseas economies would continue expansion as a whole, although various developments of late, warrant attention such as the trade friction between the United States and China.
The central bank revised down the real GDP growth outlook for the fiscal year ending March this year to 0.9 from 1.4 percent.
The projection for the fiscal year ending March 2020 was revised up to 0.9 percent from 0.8 percent and that for fiscal year ending March 2021 was lifted to 1.0 percent from 0.8 percent.
But the bank downgraded the projection for both headline and core inflation for the fiscal year ending March 2019 to 0.8 percent from 0.9 percent.
The headline inflation forecast for the fiscal year ending March 2020 was trimmed to 1.1 percent from 1.6 percent, and the core inflation outlook was slashed to 0.9 percent from 1.4 percent.
For the fiscal year ending March 2021, the headline inflation projection was cut to 1.5 percent from 1.6 percent and the core inflation forecast was trimmed to 1.4 percent from 1.5 percent.
The Bank of Japan is likely to keep its short-term policy rate and 10-year yield target unchanged beyond next year, Marcel Thieliant, an economist at Capital Economics, said.
The analyst believed that the BoJ's policy tightening remained a very distant prospect given sharp downward revision to its inflation forecasts for this year and next.