Japan continues to flirt with deflation despite two years of massive monetary easing, raising expectations for more stimulus measures, but the central bank's hands may be tied, analysts say.
"The Bank of Japan (BOJ) won't ease again," said BNP Paribas chief economist Ryutaro Kono in a note published last Friday. "One reason is that the government is worried about the negative effects of a weaker yen and isn't keen on more easing."
BOJ Governor Haruhiko Kuroda pledged in April 2013 to drag Japan out of two decades of deflation. He launched an unprecedented quantitative easing program that has seen the yen tumble more than 40 percent against the U.S. dollar and Japanese stocks rally by over 50 percent.
The weaker yen has boosted profits among Japan's blue chip exporters and lifted their share prices, but has had the side effect of pushing up import prices.
Higher prices, which have yet to be offset by the around 50 percent decline in oil prices over the past 12 months, are so unpopular with voters that the government is backing away from its two percent inflation target, said Kono.
According to the minutes for February's monetary policy meeting, the government expects the BOJ "to steadily work to achieve the price stability target of two percent," a less enthusiastic attitude compared with the previous position that the BOJ should pursue quantitative easing (QE) to achieve the two percent target "at the earliest possible time".
"The BOJ is very cautious at this moment because they have already done whatever they can do," Motoshige Itoh, a professor at the University of Tokyo's Graduate School of Economics and a member of Japan's Council on Economic and Fiscal Policy, told CNBC at the 18th annual Credit Suisse Asian Investment Conference on Monday.