Tokyo (AFP) - The head of the Bank of Japan on Wednesday said its monetary easing blitz was winning the war on deflation as policymakers held off announcing any fresh measures to stimulate the economy.
The decision after a two-day policy meeting was widely expected with analysts predicting the BoJ would launch an expansion of its asset-buying plan later this year to counter the effects of an April sales tax hike.
While the increase is seen as crucial to chopping Japan's eye-watering national debt -- proportionately the worst among rich nations -- there are fears it will derail its economic recovery.
The BoJ said the world's third-largest economy "continued to recover moderately", while it also stuck with a 2.0 percent inflation target seen as crucial to the bank's policy blueprint.
BoJ governor Haruhiko Kuroda unveiled the vast asset-buying scheme in April as part of a broader plan by Prime Minister Shinzo Abe to reinvigorate the economy and eradicate years of deflation with a policy blitz, dubbed Abenomics. Both men are attending the Davos summit where the world's political and business elite are gathering this week.
Kuroda said Wednesday that the bank would press on with its policy plan, and added that he was still confident the inflation target would be reached sometime next year -- despite growing scepticism among analysts and even some BoJ board members.
"We believe our expectations are right," Kuroda told reporters in Tokyo.
However, London-based Capital Economics said it expected the BoJ to ultimately push back its inflation target by about one year, as it unleashes further stimulus to counter any slowdown.
"Barring some major economic or market shock, the Bank of Japan is likely to wait until the second half of this year before announcing any further monetary stimulus," it said ahead of the BoJ's meeting.
"This would allow the board to gauge how the economy has weathered this April's consumption tax hike."
On Wednesday, the bank slightly lowered its growth forecast to 1.4 percent from 1.5 percent for the fiscal year ending in March 2015, which may suggest policymakers expect consumer demand to weaken after the tax rise.
"We have...pencilled in October for the timing of any official acknowledgement that the original two-year deadline will be missed...This would probably be accompanied by the announcement of additional monetary easing," Capital Economics said.
The yen got a boost after the announcement with the dollar weaker at 104.24 yen in afternoon trade, from 104.28 yen shortly before the BoJ announcement.
Despite Abe's much-lauded start since sweeping national elections in late 2012, analysts have warned that Tokyo's bold pro-growth programme -- a mix of big government spending and central bank monetary easing -- is not enough on its own without promised economic reforms.
Japan's growth slowed markedly in the July-September quarter -- after leading G7 nations in the first half of the year -- as exports weakened and consumer spending slowed.
More positively, a BoJ report last month said Japanese business confidence had soared to a six-year high, while November figures showed a key inflation indicator rising at its fastest pace since the late 1990s as Japan sank into years of deflation.
But rising prices have largely been driven up by higher fuel bills after the Fukushima atomic crisis, not surging demand for everyday goods such as vacuum cleaners and clothes which power the economy as a whole.
Since the accident, Japan has been importing fossil fuels to plug the energy gap, a pricey option that has become even more expensive as the yen sharply weakened in the wake of the BoJ's monetary easing drive.
While deflation may sound like a good thing for shoppers, it can be bad for growth because falling prices encourage consumers to put off spending, knowing they will pay less for a product if they wait.
That makes it difficult for companies to invest and discourages them from raising wages, which, in turn, reduces consumer spending further.