TOKYO, Dec. 20 (Xinhua) -- The Bank of Japan (BOJ) on Tuesday left its monetary policy unchanged at the conclusion of its two-day policy meeting and gave a somewhat upbeat assessment on output and exports albeit amid protracted reflationary headwinds.
While maintaining its negative 0.1 percent interest rate on some bank reserves, the BOJ also opted to leave its 10-year Japanese government bond (JGB) yield target at about zero, while annual holdings were kept at a rise of about 80 trillion yen (682 billion U.S. dollars).
Following the two-day policy meeting and opting to hold pat on any new policy changes, the central bank upgraded its economic assessment saying a moderate recovery trend has continued while exports have picked up.
"Japan's economy has continued its moderate recovery trend. Overseas economies have continued to grow at a moderate pace, although emerging economies remain sluggish in part. In this situation, exports have picked up," the BOJ said in a statement on Tuesday.
However the bank noted that in spite of an upbeat overall assessment based on a flurry of better-than-expected economic data recently, its reflationary efforts still remained pressured.
"On the price front, the year-on-year rate of the change in the consumer price index (CPI, all items less fresh food) has been slightly negative," the bank said. "Inflation expectations have remained in a weakening phase."
The BOJ has been actively trying to combat decades of deflation that have been hampering Japan's recovery and set itself a 2 percent inflation target to achieve in two years, although the bank has had to delay its inflation target multiple times, with a number of notable economists believing the 2 percent target and the timeframe under the current economic conditions are overly optimistic and "lofty."
Nevertheless, the BOJ, after its policy meeting said the outlook for the economy here was reasonable, stating that: "Japan's economy is likely to turn to a moderate expansion. Domestic demand is likely to follow and uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, on the back of highly accommodative financial conditions and fiscal spending through the government's large-scale stimulus measures."
On exports the BOJ noted they are "expected to follow a moderate increasing trend on the back of an improvement in overseas economies," although cited possible downside risks as including developments in emerging and commodity-exporting economies, developments in the U.S. economy and its future monetary policy, as well as issues pertaining to the European Union (EU).
In September, the BOJ said it would make yield curve control the nucleus of its new framework and to this end the bank said it will continue with Quantitative and Qualitative Monetary easing (QQE) with Yield Curve Control, "aiming to achieve the price stability target of 2 percent."
"It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2 percent and stays above the target in a stable manner," said the BOJ.
Economists said that attention will now turn to BOJ Governor Haruhiko Kuroda's remarks later in the day, particularly regarding mechanisms to deal with the recent rise in yields.
The BOJ may need to do more, some analysts have said, following the 10-year JGB yield hitting 0.1 percent last week. This level, many observers believe, may be approaching or at the upper limit acceptable to the BOJ.
