The Bank of Japan kept its ultra-loose monetary policy in place, despite investor expectations of a move towards an exit from crisis-era stimulus in line with the trend in other major economies.
Governor Haruhiko Kuroda said the central bank wasn't in a position to consider exiting its current policy after the board voted 8-1 to keep interest rates and asset purchases at current levels. The bank also kept its pledge to buy government bonds at an annual rate of 80 trillion yen ($720 billion), a passage.
The yen, which had strengthened as the market reacted to the BoJ's view of price expectations, weakened after Kuroda's comments.
The central bank forecast the economy to grow 1.4% in the fiscal year starting in April, with inflation of 1.4% over the same period.
"There is absolutely no need to adjust our yield targets just because we revised up our assessment on inflation expectations", he said.More news: Tsunami warning after magnitude 8.2 quake hits off coast of Alaska
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Japan's economy expanded for the seventh straight quarter in July-September, its longest uninterrupted stretch of growth since 1994.
Earlier in the session, the U.S. Dollar recovered from earlier losses against the Yen after U.S. senators struck a deal to lift a three-day government shutdown and Trump signed the deal into law.
Almost three-quarters of Japanese companies expect the economy to keep expanding at least another year, extending an already strong run, although they were not as bullish as market estimates, a Reuters poll showed. The recent sell-off in the Forex pair may have been an over-reaction by traders preoccupied with the idea that the BOJ will adjust its monetary policy at some stage in the future.
The 10-year JGB futures price rose 0.10 point to 150.47 while the benchmark cash 10-year JGB yield dipped 0.5 basis point to 0.070 percent, slipping further from a six-month high of 0.090 percent set on Thursday.
But BOJ policymakers are hardly complacent and warn that an index of consumer inflation that strips away the effect of fresh food and energy - still at 0.3 percent - must accelerate more before any debate on withdrawing stimulus could begin. "It would be impossible to contain this", said Hiroaki Muto, an economist at Tokai Tokyo Research Center.