Members of the Bank of Japan's monetary policy board feel that Japan's economy will return to a moderate recovery path, the minutes from its July 11-12 meeting revealed on Tuesday.
The bank expects the recovery to follow firm domestic demand, and as overseas economies emerge from deceleration, the minutes said - although some of the members pointed out that Japan could still be adversely affected by Euro debt risks.
"There remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth," the minutes said. "Regarding risks to the price outlook, careful attention should be paid to future developments in international commodity prices and in medium- to long-term inflation expectations."
At that meeting, the BoJ decided to boost the size of the asset purchases by JPY 5 trillion to JPY 45 trillion for end-June 2013, while keeping purchases of government bonds unchanged.
At the same time, the credit loan program was cut by JPY 5 trillion to JPY 25 trillion. The total size of the asset purchase program remained unchanged at JPY 70 trillion.
The benchmark uncollateralized overnight call rate was kept unchanged at 0-0.1 percent.
The bank has been providing support to strengthen the foundations for economic growth and pursuing powerful monetary easing," the minutes said. "The bank continues to conduct monetary policy in an appropriate manner. The Bank will also do its utmost to ensure the stability of Japan's financial system."
The central bank slightly lowered the growth forecast for the economy to 2.2 percent in fiscal 2012 from 2.3 percent projected in April. The outlook for fiscal 2013 was left unchanged at 1.7 percent.
The inflation forecast for fiscal 2012 was cut to 0.2 percent from April's projection of 0.3 percent. The 2013 forecast remained unchanged at 0.7 percent.
"With regard to prices, the year-on-year rate of change in the domestic corporate goods price index will likely be somewhat lower for fiscal 2012 but broadly in line with the April forecasts for fiscal 2013," the minutes said. "The year-on-year rate of change in the CPI (all items less fresh food) is expected to be broadly in line with the April forecasts."
The year-on-year rate of change in the CPI is expected to remain at around zero for the time being. The BoJ has set a 1 percent target for inflation this year.
"The bank recognizes that Japan's economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability," the minutes said. "This challenge will be met through efforts by a wide range of economic agents to strengthen the economy's growth potential and support from the financial side."
Also on Tuesday, the Ministry of Economy, Trade and Industry said that an index measuring tertiary industry activity in Japan was up a seasonally adjusted 0.1 percent on month in June, standing at 99.4. That beat forecasts for a contraction of 0.3 percent following the 0.7 percent increase in May.
Industries that moved higher were finance and insurance, wholesale and retail trade, accommodations, communications and real estate. Industries that moved lower were scientific research, transportation, utilities and health care.
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