By Leika Kihara and Stanley White
TOKYO (Reuters) - The Bank of Japan pushed back the timeframe for hitting its ambitious inflation target on Thursday but refrained from expanding its already massive stimulus programme, clinging to its conviction that a steady economic recovery will gradually nudge up prices.
BOJ Governor Haruhiko Kuroda said he saw no need to ease monetary policy further for the time being since rising wages are underpinning a broad uptrend in prices. He blamed weak inflation data largely on the lower costs of oil, rather than stubbornly soft economic activity.
That argument is becoming a tough sell, however as the central bank's massive money printing over the last two years has failed to boost consumer spending and companies' capital expenditure.
Despite Kuroda's optimistic comments on the prospects for hitting his inflation target, many analysts still expect the BOJ to expand stimulus again later this year.
"We expect the BOJ to ease policy again in October and we are not likely to change our view," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.
"We expect consumer prices to rise after oil prices stop applying downward pressure, but we doubt that prices will rise quickly."
As expected, the BOJ on Thursday maintained its pledge to increase base money at an annual pace of 80 trillion yen (453 billion pounds) through purchases of government bonds and risky assets.
With inflation having ground to a halt due to slumping fuel prices, the BOJ's nine-member policy board cut its core consumer inflation forecast for this fiscal year to 0.8 percent from 1.0 percent in its twice-yearly review of its forecasts.
The central bank said it now expects inflation to hit its 2 percent target around April to September 2016, watering down its earlier forecast that the target would be met around the current fiscal year, which began this month.
"It's true that the timing for achieving 2 percent inflation has been delayed somewhat," Kuroda told a news conference.
"But trend inflation is improving steadily and is expected to continue improving. As such, I don't think there's a need to ease policy further now."
Economists had long been sceptical that the BOJ would meet its target within its original timeframe, and the collapse of world oil prices last year along with tepid economic growth had put it even further out of reach.
Three board members said the new timeframe was still too optimistic, suggesting that Kuroda's bullishness is not necessarily shared by the rest of the board. Kuroda acknowledged that some board members cited weak consumer spending as one of the reasons for sluggish price growth.
STILL BULLISH THAN MARKETS
The BOJ surprised markets last October by expanding its asset purchase programme after cutting its forecasts, days after Kuroda had assured parliament that a recovery was on track.
Central bankers have stressed since then that they will look through the effect of lower oil costs, which are largely blamed for inflation evaporating in February.
But consumption has failed to rebound, underscoring doubts held by analysts that inflation will accelerate as quickly as the BOJ projects.
Even after trimming its forecasts, the BOJ remains more bullish than the broader market. Analysts polled by Reuters expect core consumer inflation to hit 0.3 percent this fiscal year and 1.3 percent the following year, barely half the pace projected by the BOJ.
In deploying its radical stimulus plan in April 2013, the BOJ committed to achieving 2 percent inflation "at the earliest date possible with a timeframe of roughly two years."
Despite missing the deadline, Kuroda said the BOJ had no plans to tweak the language because it underscored the bank's strong resolve to end deflation and thus has a psychological impact on inflation expectations, encouraging consumers to spend.
But with the timing of hitting the target being delayed time after time, Kuroda risks losing credibility, some analysts say.
"This will be the last time the BOJ can delay the timing of meeting its target as doing so again could badly undermine its credibility," said Junichi Makino, chief economist at SMBC Nikko Securities.
"Sooner or later the BOJ would be forced into further easing, while admitting that it failed to achieve the inflation target."
