TOKYO, Japan — The Bank of Japan (BoJ) has warned over a worsening export and factory output picture but it held fire on launching more stimulus, saying the economy was recovering from a recent sales tax hike.

The decision was widely expected so markets focused on BoJ governor Haruhiko Kuroda’s post-meeting comments, amid growing speculation that the slowing economy would force the BoJ’s hand on more monetary easing.

However, Japan’s top central banker gave little indication he would soon pull the trigger on more measures similar to the Federal Reserve’s quantitative easing after the levy hike dented consumer spending and growth in the world’s number three economy.

Kuroda, however, has said the impact of the sales tax hike has not been as bad as expected, and its effects were waning, as the bank pushes to hit a 2.0 per cent inflation target by next year.

The bank chief has pledged to take further action if necessary, after last year launching unprecedented measures as part of a wider move to kick-start the deflation-plagued economy.

On Friday last, Kuroda and his colleagues acknowledged potential headwinds, saying that exports were declining, after Japan’s trade deficit more than quadrupled in June from a year ago, while factory output was “showing some weakness”.

Kuroda also said that the sharp decline in the yen over the past year and a half had not boosted exports “as much as we had expected”.

However, the bank offered a mixed picture, saying that jobs and wage growth were improving, with demand picking up after initially dropping in the wake of the tax hike.

“It’s true that we’ve seen two consecutive quarters of export decline,” Kuroda told reporters after the meeting.

“But, looking ahead, there is a consensus among (economists) including the IMF (International Monetary Fund) that the global economy will grow faster this year than last year, and more next year than this year.

“In those circumstances, I think Japan’s exports will slowly increase, chiefly led by high value-added products where Japan is strong.”

Tokyo stocks dropped to a two-month low as investors reacted to US President Barack Obama’s announcement that he had authorised air strikes on Iraq.

Asked about geopolitical risks, including the Ukraine crisis, Kuroda said: “We will carefully monitor the impact on the Japanese economy and the world economy, but at this point there is no direct impact on the economy here.”

Despite the BoJ’s decision to hold steady, many economists still think the central bank will expand its easing measures later this year, or extend the time-frame for its existing programme.

Last month, the bank slightly lowered its growth forecast for the current fiscal year to March to 1.0 per cent from a previous 1.1 per cent forecast. But it had been predicting growth of 1.5 per cent in late 2013.

The BoJ’s April-June Tankan survey showed Japanese business confidence sagged for the first time in six quarters owing to the April 1 sales tax increase, seen as crucial to cutting Japan’s massive national debt.

The economy had been on the upswing as Prime Minister Shinzo Abe’s growth blitz, dubbed Abenomics, helped sharply weaken the yen, giving a lift to exporters’ profitability and driving a stock market rally last year.