TOKYO • The Bank of Japan (BOJ) kept stimulus unchanged and left its inflation forecasts largely untouched as it waits to see the impacts of a recent decline in the yen and the policies of US President Donald Trump's administration.

The central bank also hiked its economic growth forecasts, citing an improved global outlook and a weaker yen but the country's finance chief warned of "uncertainty" caused by the Trump White House.

The BOJ tipped expansion to hit 1.4 per cent in the current fiscal year ending March, compared with its previous 1 per cent estimate.

It expects growth to come in at 1.5 per cent in the following 12 months.

"The projected growth rates are somewhat higher, mainly reflecting improvement in overseas economies and the yen's depreciation," the bank said in its quarterly outlook.

BOJ governor Haruhiko Kuroda and his board will continue to buy bonds and other securities at the same pace while keeping unchanged the two policy rates controlling the yield curve.

Even though Japan is still far from the BOJ's 2 per cent inflation target, the yen's recent fall against the US dollar has reduced pressure on the central bank to do more because the currency will increase inflationary pressures and make exporters more competitive.

The interest rate will continue to be at minus 0.1 per cent, while the bank will continue purchasing bonds to maintain 10-year yields at around zero per cent. An increasing number of economists now think the bank may start tightening policy sometime this year.

"Our monetary policy stance is determined at each policy-setting meeting with the aim of achieving 2 per cent inflation at the earliest date possible," Mr Kuroda said at a briefing after the policy decision.

Thanks to the weaker yen and higher oil prices, Japan's core inflation index has bottomed out and is rising to near zero.

Even so, most economists think that the bank's forecasts are too optimistic, and almost no one surveyed thinks the BOJ will reach the 2 per cent inflation target as quickly as it claims.

"The BOJ is paying the most attention to what comes out of Mr Trump, though it doesn't say this directly," said Daiwa Securities economist Maiko Noguchi. "What the BOJ really wants to see is strong wage gains helping inflation pick up, but they are not talking much about it because there's not much hope for wages."

Protectionism could slow the global economy, but it seems unlikely to spread around the world, Mr Kuroda said at the briefing. The details of new economic policies in the US are not clear yet and the BOJ will monitor developments closely, he said.

The currency traded at 113.67 versus the US dollar at 4.44pm in Tokyo yesterday. A weak yen helps boost corporate profits and that could lead to more investment and wage growth, though these flow-on effects have been disappointing so far.

BLOOMBERG, AGENCE FRANCE-PRESSE