Bank of Japan Governor Haruko Kuroda said extra stimulus would be an option if prices refuse to keep rising toward the central bank's 2% inflation target.
The BOJ "will consider extra easing measures without hesitation" if the economy runs into a situation where momentum toward reaching stable inflation is lost, Kuroda said at a news conference on Thursday in Tokyo after keeping monetary policy unchanged.
The bank is standing pat even as its U.S. and European counterparts are signaling a shift in policy to a dovish bias amid continued trade tensions between the U.S. and China.
The BOJ board voted 7-2 to keep its ultra-easy monetary policy program in place, including increasing its holdings of Japanese government bonds at an annual pace of 80 trillion yen ($738 billion). Short-term interest rates were kept at minus 0.1% while long-term interest rates were guided to around 0%.
The BOJ maintained its economic assessment, saying the economy is expanding at a moderate pace.
The BOJ has limited room for policy action, even as Gov. Haruhiko Kuroda emphasizes his willingness to take further easing measures. The aggressive monetary easing under Kuroda is entering its seventh year and has been producing negative side-effects such as harming the health of commercial banks as they lose opportunities to earn a spread.
Pressure could grow on the BOJ to take action, as the trade war has cooled the Chinese economy and reduced Chinese demand for Japanese capital goods. Prospects of slower growth have also led investors to flock to the safe-haven yen, pushing the value of the yen up to a five-month high against the dollar and further damaging the ability of Japanese exporters to sell overseas.
In a news conference on the monetary policy decision, Kuroda pointed to stronger-than-expected first-quarter growth in the U.S., the eurozone, Japan and China as a reason for maintaining his stance on the economy. But he warned that the downside risks to the global economy are rising, saying that "there is no sign of the U.S.-China trade dispute moving toward a resolution."
