The Bank of Japan kept its key monetary policy settings unchanged on Tuesday, but one small sign of increasing hawkishness came as the central bank suggested inflation expectations were no longer falling.
Its main interest rate remained at -0.1% and 10-year bond yields were capped at close to 0% in its bid to hit its target inflation rate of 2% and boost economic growth.
The BoJ's quarterly outlook was released alongside the policy statement on Tuesday, and the central bank said it would continue "quantitative and qualitative monetary easing with yield curve control" for as long it remained necessary to achieve its 2% inflation target.
Core consumer price inflation stood at 0.9% in November and is expected to remain at this annual rate when December figures are published next week.
In its quarterly outlook projections the Bank said it expected core consumer prices to rise to an annual rate of 1.4% in 2018 and up to 1.8% in 2019, reaching 2% by the end of fiscal 2019. Its growth expectations, meanwhile, forecast 1.4% annual gross domestic product this fiscal year.
Back to the policy statement, and the BoJ's language slightly changed its nuance to reflect inflation expectations. It no longer believes inflation expectations are weakening, but said risks to prices "remained skewed to the downside".
"Raising inflation expectations is an important goal for the BoJ, which aims to knock backward-looking expectations out of the system. We think the BoJ will have to make adjustments to its 10-year target as inflation rises, to avoid damaging consumer demand," said analysts at Pantheon Macroeconomics.
Hussein Sayed, chief market strategist at FXTM, said: "The Bank of Japan decided not to surprise markets by keeping monetary policy unchanged.
"Traders who were speculating on early withdrawal of stimulus received no signs that one would materialise. The fact that price projections remained unchanged, indicates that the exit of unconventional monetary policy isn’t likely to occur anytime soon.
"This is despite the BoJ announcing earlier this month that it was marginally reducing the purchase of long-dated JGBs."
The slight change in inflationary expectations buoyed the yen versus the euro and sterling: up 0.07% to Y135.89 and up 0.1% to Y154.95 respectively.
The rallying dollar, however, rose 0.05% to Y110.96.
Stock market investors, however, welcomed the absence of any monetary tightening and pushed the Nikkei 225 up by 1.3% to 24,125.