×

BOJ keeps policy steady, warns of weakness in industrial output

The Bank of Japan headquarters in Tokyo, Japan.
Tomohiro Ohsumi | Bloomberg | Getty Images
The Bank of Japan headquarters in Tokyo, Japan.

The Bank of Japan (BOJ) on Tuesday kept its massive monetary stimulus intact, but struck a less optimistic tone on the economy, warning of weakness in factory output.

As expected, the BOJ will retain its pledge of increasing base money at an annual pace of 60-70 trillion yen (£343 billion - £400 billion) through purchases of government bonds and risky assets.

Read MoreJapan business sentiment improves: September Tankan survey

But the central bank revised down its assessment of industrial output, acknowledging that a sales hike introduced in April has had a worse-than-expected impact on the economy.

Read MoreFat-finger trade sends shudder through Japan stocks

Focus will be on governor Haruhiko Kuroda's post-meeting briefing later in the day. Earlier on Tuesday, Kuroda maintained that Japan's positive economic cycle remained in place, but warned of potential risks to growth and stressed that the central bank was ready to ease monetary policy further if the economy and prices undershoot its forecast.

"It's true the effect [of the sales tax hike] on the economy is being prolonged. There's also the effect of bad summer weather," Kuroda told parliament.

Read MoreJapan economy still struggling with tax hike, data show

The nation-wide sales tax hike to 8 percent from 5 percent, which came into effect in April, has dragged on Japan's economy, which shrank an annualized 7.1 percent in the second quarter.

The central bank has stood pat on monetary policy since deploying its intense burst of stimulus in April last year, with the aim of achieving 2 percent inflation in roughly two years.