On Thursday, the BoJ maintained its loose monetary policy settings and forecasted inflation well below its 2% target for at least two more years, reinforcing market expectations that it will lag behind other central banks in dialling back crisis-mode measures.

The BoJ lowered its consumer inflation projection for the year ending in March 2022 from 0.6% to 0% in new quarterly estimates. The central bank also cut its economic growth prediction for this year, citing slow consumption and manufacturing output losses due to supply bottlenecks caused by the COVID-19 outbreak. The projections show how Japan's policies differ from those of other countries. 

Masamichi Adachi, chief economist at UBS Securities said "while other nations are gradually reducing monetary support, the BoJ is living in a completely different world as an outlier from the global trend. Given the BoJ's tepid inflation predictions, the central bank will continue to ease policy under yield curve control at least until Governor Kuroda and his two deputies complete their terms in 2023."

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At the two-day rate review that ended on Thursday, the BoJ kept its short-term interest rate objective at -0.1% and its 10-year bond yield target at roughly 0%, as generally expected.

Despite external headwinds, the BoJ expressed optimism about Japan's recovery prospects. It upped its growth prediction for the coming fiscal year, calling the recent slowdown in exports and output "temporary."

"As the pandemic's influence diminishes, the economy is anticipated to improve," it added, stating that the corporate sector's strength will gradually extend to households.

Inflation expectations are "picking up," according to the BoJ, implying that increasing wages will eventually make households more receptive to price increases. "As businesses become more eager to adjust their pricing behaviour, more of them may begin to pass on costs and hike prices," said the BoJ.