By Leika Kihara and Stanley White
TOKYO (Reuters) - The Bank of Japan kept monetary policy steady on Wednesday and maintained its upbeat inflation forecasts, suggesting that no imminent monetary easing is on the horizon as the country's economic recovery broadens.
The weak yen, which inflates import costs, has helped Japan pass the halfway mark toward its 2 percent inflation target with prices in November up 1.2 percent from a year before.
While market suspicion of whether inflation will accelerate further runs deep, recent price gains and signs of economic strength have made central bankers more certain that Japan is on track to meet their price target.
The BOJ, which announced a huge stimulus in early 2013, prefers not to ease again unless clear evidence emerges that a sales tax hike this April causes far more damage than expected.
As widely expected, the BOJ maintained its commitment of increasing base money at an annual pace of 60-70 trillion yen ($577-$673 billion) via aggressive asset purchases.
In a quarterly review of its long-term forecasts, the BOJ maintained its forecast that core consumer inflation will hit 1.3 percent in the fiscal year beginning in April and accelerate to 1.9 percent the following year.
"Japan's economy is continuing to recover moderately with consumers recently front-loading spending ahead of the sales tax hike," the central bank said, adding it expects consumer inflation to move around 1.0-1.5 percent for the time being.
Board member Sayuri Shirai made a rare dissent to part of the BOJ's economic assessment, saying that the slow pace of improvement in job and income conditions must be added as among the risks to the outlook.
FOCUS ON KURODA
The BOJ launched an intense burst of monetary stimulus last April, pledging to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.
The economy is likely to boom until March as consumers rush to beat the sales tax hike, and many analysts take the BOJ's view that the pain from the higher tax will be temporary.
But some fret the tax hike may hit consumption harder than expected. Others doubt consumer inflation will accelerate much from here, as prices will soon lose support from the weak yen.
Such sceptics have thus speculated the BOJ may act soon to pre-empt the damage from the tax hike.
Governor Haruhiko Kuroda has shrugged off the likelihood of imminent action, but has repeatedly said the bank will act "without hesitation" if such risks threaten the achievement of its price target.
Markets will focus on Kuroda's post-meeting news conference for any clues on the timing of any additional stimulus.
There are some initial signs of success.
A leading indicator of capital expenditure hit a five-year high in November, while Japan's most influential business lobby has agreed to raise workers' base pay for the first time in six years as the economy gains momentum.
Still, a recent Reuters poll showed economists do not expect firms to raise wages significantly this year and project inflation will stay well below the BOJ's target, underscoring the challenges that lie ahead for the central bank.
"The effect from the weak yen will gradually wane after spring, slowing the pace of consumer price rises," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.
"It's obvious the economy will slow after the sales tax hike. I can't deny the chance the BOJ will embark on additional monetary easing in March to surprise markets," he said.
($1 = 104.0350 Japanese yen)
(Additional reporting by Tetsushi Kajimoto and Kaori Kaneko; Editing by Eric Meijer & Kim Coghill)