The Bank of Japan lowered its inflation forecast on Thursday after keeping interest rates and asset purchases under its quantitative easing programme on hold.
Persistently low inflation has thwarted any attempt by the central bank to start normalising monetary policy, despite a pick up in growth this year.
Indeed the BoJ was upbeat on the economic outlook for Japan, lifting its growth forecasts for the current fiscal year and 2018-19.
Inflation forecasts lowered
In a statement accompanying its monetary policy decision, the BoJ said it now sees consumer price inflation (CPI) at 1.1% this year, down from a previous forecast of 1.4%. In 2018-19 it expects annual price growth of 1.8%, down from 1.9% previously.
The central bank also said it now expected inflation to reach its 2% target rate by the end of 2019, rather than by the end of March 2019.
Low inflation has dogged the Japanese economy for two decades, and as the financial crisis turned investors into savers, low price growth has persisted, despite attempts by the authorities to stimulate the economy. CPI stood at 0.4% in June.
"Inflation should pick up in 2018 on the back of moderately faster wage growth," said analysts at Pantheon Macroeconomics.
"Import prices will also begin rising again as the yen depreciates but the target will still look a long way off in the first half of 2018."
Growth outlook brighter
The BoJ sounded an optimistic tone on growth, however, raising gross domestic product targets for this year to 1.8% from its previous forecast of 1.6%, and for 2018-19 to 1.4% from 1.3% previously.
The statement said: "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."
As expected the central bank kept its main monetary policy tools unchanged.
Its main overnight interest rate was left at -0.1%, asset purchases would continue at about Y80tn (£548.3bn), and 10-year bond yields capped at "around zero".
While the BoJ continues its expansionary policy, the other main central banks are becoming increasingly hawkish.
Both the European Central Bank, which makes a policy announcement later on Thursday, and the US Federal Reserve are moving towards the removal of stimulus.
"It is becoming obvious that Japan’s policy makers are not willing to join the tightening course followed by other central banks,” said Hussein Sayed, chief market strategist at FXTM.
This left the yen weaker on Thursday morning. Against the dollar, the Japanese currency fell 0.3% to Y112.27, while the euro rose 0.2% to Y129.22 and sterling was fractionally higher at Y145.87.