The Bank of Japan kept monetary settings steady on Thursday and maintained its upbeat view on the economy, suggesting policymakers are in no hurry to boost stimulus even as global risks threaten to scupper a fragile recovery.
But the central bank offered a gloomier view on factory output than at its previous rate review in October, nodding to the widening fallout from soft global demand and the US-China trade war.
The decision to stand pat keeps Japan in line with the US Federal Reserve and the European Central Bank, which have both signaled that monetary policy will be in a holding pattern for the time being.
As widely expected, the BOJ maintained its short-term interest rate target at -0.1% and that for 10-year government bond yields around 0%.
The central bank also kept intact its assessment that Japan's economy continues to expand moderately as a trend.
"Industrial production is falling due mainly to natural disasters," the BOJ said in a statement announcing its policy decision, revising down its view from October when it said output was moving sideways.
The steady policy stance is partly underpinned by moves from the United States and China to secure a preliminary trade deal to de-escalate a bruising trade war, which has hit world growth.
Japan's economy, the world's third-largest, expanded an annualized 1.8% in the third quarter on resilient domestic demand and business spending.
But factory output suffered its largest fall in two years in October and big manufacturers' business sentiment sank to a near seven-year low in the fourth quarter, underscoring the fragile state of Japan's recovery.
Many analysts expect the economy to have contracted in the current quarter as a sales tax hike in October cools consumption.
At his post-meeting news conference, BOJ Governor Haruhiko Kuroda is likely to repeat the bank's readiness to ease further if risks threaten to derail Japan's economic recovery.
But many analysts say the hurdle for action is high given the strain prolonged ultra-low rates are heaping on financial institutions.
Koichi Hamada, a key economic adviser to Prime Minister Shinzo Abe, criticized the BOJ's negative rate policy and warned against pushing borrowing costs down to a "reversal rate," or a level that could do more harm than good by crippling financial institutions' ability to lend.
"Negative interest rates hurt, particularly smaller financial institutions' health, so the BOJ must try to avoid a situation where interest rates reach a level deemed as a reversal rate," he told Reuters earlier this week.