The Bank of Japan said Thursday that it kept its monetary policy unchanged after its two-day meeting, but it cut inflation forecasts for fiscal years 2017/2018 and 2018/2019.
The central bank now expects inflation to be at 1.1 percent for the current fiscal year, down from its previous forecast of 1.4 percent. For the next financial year, it expects inflation to hit 1.8 percent instead of 1.9 percent.
"The timing of the year-on-year rate of change in the CPI reaching around 2 percent will likely be around fiscal 2019," the central bank said in its latest statement. It had previously said it would hit the target before the end-March 2019.
It also sounded more upbeat on the country's economy, raising its gross domestic product expectations for the current and next fiscal years to 1.8 percent and 1.4 percent, respectively. Those are higher than the 1.6 percent and 1.3 percent it previously projected.
"With regard to the outlook, Japan's economy is likely to continue its moderate expansion. Through fiscal 2018, domestic demand is likely to follow an 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," the BOJ said.
Inflation has been the central bank's Achilles heel as price growth remains stubbornly weak even as the wider economy is now on firmer footing. Japan's Ministry of Finance data showed on Thursday that the country's exports grew 9.7 percent year-on-year in June — beating the 9.5 percent gain forecast by Reuters.
Economists had expected the BOJ to lower inflation forecasts, keep rates unchanged and hold off from expanding stimulus.