Bank of Japan Governor Haruhiko Kuroda arrives at the central bank's head office in Tokyo for a policy-setting meeting on Oct. 28, 2021. (Kyodo)

       TOKYO (Kyodo) -- The Bank of Japan on Thursday trimmed its economic growth and inflation forecasts for the year through March, keeping its ultraloose monetary policy intact to buttress a fragile economic recovery from the COVID-19 malaise.

       The BOJ gave the bleaker economic outlook after a two-day policy meeting, as parts shortages have hit automakers such as Toyota Motor Corp. that have been forced to cut output. COVID-19 restrictions that were in place until recently have delayed a recovery in the services sector.

       The Japanese central bank said the economy will likely grow 3.4 percent, rather than the 3.8 percent projected in its previous policy-setting meeting in July.

       Core consumer prices excluding volatile fresh food are forecast to stay at 0.0 percent, lower than its earlier projection of a 0.6 percent increase.

       The BOJ kept its "yield curve" control program to set short-term interest rates at minus 0.1 percent and guide 10-year Japanese government bond yields around zero percent to keep borrowing costs low for companies and households.

       "Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad," the BOJ said in maintaining its assessment.

       Taking a hit from supply-side constraints, exports and industrial output have been "weak" in some areas, though they have continued to increase, the BOJ said, changing its wording from "affected."

       The growth outlook for the year from next April, however, was upgraded to 2.9 percent from 2.7 percent in the latest economic outlook report.

       The BOJ stands in sharp contrast with its peers like the U.S. Federal Reserve and the European Central Bank, which are increasingly facing the risk of inflation and the need to ponder scaling back crisis-mode support. The U.S. central bank's policy meeting is coming up next week.

       No surprises had been expected in the first BOJ policy meeting since new Prime Minister Fumio Kishida took office in early October.

       Kishida, who is now aiming to win a majority in Sunday's House of Representatives election, has stressed the need to keep monetary easing in the crisis situation and for the central bank to stick to the 2 percent inflation target.

       But opposition parties claim that bold monetary easing under "Abenomics," an economy-boosting program launched by former Prime Minister Shinzo Abe, did little to boost inflation expectations, taking issue with the absence of an exit scenario.

       Inflation is not an imminent risk in Japan where the core consumer price index is just above zero percent and is projected to rise about 1 percent during Governor Haruhiko Kuroda's term to April 2023, the latest report showed. This bolsters the case for the BOJ to keep its easing steps and diverge from the Fed and the ECB.

       The recent sharp drop in COVID-19 cases and progress in vaccinations have raised hopes for a further reactivation of the economy. The combination of a shortage of parts, higher energy and material costs as well as a weaker yen, however, is making things difficult for the BOJ.

       The BOJ will continue to buy exchange-traded funds with an upper purchase limit set at 12 trillion yen ($106 billion) a year. The policy board also decided to keep funding support for struggling firms amid the pandemic.

       Kuroda is scheduled to explain the policy decision at a press conference later in the day.

       The BOJ said the CPI has been pushed down significantly by sharply lower mobile charges, but it is expected to increase toward the end of this year due to higher energy prices. Major Japanese carriers started offering cheap plans in the face of government pressure.

       On the one hand, positive CPI numbers come as a relief to the BOJ as it battles to accelerate inflation toward 2 percent in a country known for years of deflation. But on the other, households are sensitive to higher prices, which economists say could hurt consumer sentiment when domestic demand lacks strength.

       The yen's weakness also cuts both ways as it boosts exporters' overseas profits when repatriated but also raises costs for importers. The U.S. dollar recently hit a four-year high in the upper 114 yen zone.

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