The Bank of Japan (BOJ) kept policy steady in an 8-1 vote Thursday, but cut its forecasts for economic growth and inflation in its outlook statement.
The central bank cut its forecast for core consumer price index (CPI) to 0.8 percent for fiscal year 2015 from its 1.0 percent projection in January. It also lowered its forecast for this fiscal year's gross domestic product (GDP) growth to 2.0 percent from the 2.1 percent it projected in January.
For the 2016 fiscal year, it cut its GDP growth forecast to 1.5 percent from the 1.6 percent forecast in January, while lowering its core CPI forecast for that year to 2.0 percent from January's 2.2 percent projection.
But it cited considerable uncertainty on the price outlook, saying risks are skewed to the downside. The expected second sales tax hike slated for 2017 is also a potential risk to economic activity, it said.
The central bank doesn't plan to change its commitment to achieve 2 percent inflation within around two years, BOJ Governor Haruhiko Kuroda said at a press conference after the release of the outlook. But he noted that two board members believed it would be difficult to achieve the target during the three-year outlook projection period.
Earlier in the day, the BOJ maintained its massive easing program of purchasing 80 trillion yen ($670 billion) worth of assets annually. Kuroda said the BOJ didn't debate when it would exit its quantitative easing program, adding that can't be decided based solely on the bank's CPI forecasts.
Some economists aren't convinced the BOJ's efforts so far will be enough.
The BOJ is ignoring signs its efforts to boost inflation toward a 2 percent target are stalling, Marcel Thieliant, a Japan economist at Capital Economics, said in a note. He had forecast the central bank would step up easing at this meeting.
"The bank obviously considers the slowdown in inflation since the autumn to be a temporary phenomenon, blaming it mostly on the plunge in energy prices. In our view, there is more to it than that," he said. "The economic recovery is stalling, wages are barely rising, and inflation excluding food and energy is near zero, too."
Analysts had broadly expected the BOJ would leave its easing program intact, but the Nikkei business daily had reported the central bank could lower its median inflation estimate for fiscal 2015.
After the Bank of Japan's policy decision, the yen strengthened, with the U.S. dollar fetching around 118.62 yen shortly after the decision, compared with around 118.90 yen an hour prior to the announcement. The Nikkei 225 deepened its losses, ending down 2.7 percent after trading down around 1.66 percent before the announcement.
Prior to the BOJ's statement, Japan's chief government spokesperson said the central bank's monetary policy stance has been appropriate to beat deflation. Last week, a prominent lawmaker, Kozo Yamamoto, had urged the BOJ to increase its asset purchases to 90 trillion yen annually.
One board member, Takahide Kiuchi, often a lone dissenter, once again urged the BOJ to cut its purchases of government bonds and risky assets to 45 trillion yen annually; he's made the proposal for seven straight meetings.
The country's economy continues to waver. Japan's industrial production fell 0.3 percent in March, but that was still well above the 2.3 percent decline that had been forecast in a Reuters poll, according to data released earlier Thursday.
In April of 2013, the Bank of Japan launched a massive quantitative easing program, which was later expanded to purchase 80 trillion yen worth of assets a year, as a part of Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe to jump start the economy.
But Abenomics has had a mixed track record.
The economy got clobbered when consumers stopped spending following a rise in the nation-wide consumption tax to 8 percent that took effect last April, forcing the government to postpone a second sales tax initially due this October.
Japan's retail sales for March, released earlier this week, plunged 9.7 percent on-year, well below expectations, after last year's sales were front-loaded as shoppers splurged ahead of a sales-tax increase.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter