The Bank of Japan left its monetary policy unchanged and kept short-term interest rates at the level of -0.1%. The target yield of a 10-year JGB Treasury bond remained at around 0%. The Bank of Japan also kept its commitment to acquire Japanese government bonds worth 80 trillion yen per year.

But the Bank of Japan issued a slightly stronger warning about financial vulnerability than it did three months ago, reflecting growing concern that years of ultra-low interest rates are detrimental to bank profits and may prevent them from increasing lending.

"Long-term downward pressure on financial institutions' profits from low interest rates can destabilize the financial system. Although these risks are currently considered to be insignificant, it is necessary to pay close attention to future policy developments."

As expected, the policies of the central bank supported the commitment to maintain short-term interest rates at the level of -0.1% and long-term rates around zero percent by voting 7 against 2.

In the quarterly report, the central bank reduced the main consumer inflation forecast for 2018/19 to 0.9% against 1.1% in July, and for 2019/20 to 1.4% against 1.5% in the previous year. The average CPI for 2000/21 also declined from 1.6% to 1.5%.

The average real GDP forecast for the 2018/19 fiscal year was 1.4% versus 1.5% in July. Real GDP forecast for 2019/20 remained unchanged at 0.8%.

Inflation remains well below the Bank of Japan target of 2%, despite Japan's steady economic expansion, forcing the central bank to maintain stimulus, despite the impact on banks' profits over the years at almost zero interest rates.

The central bank took steps in July to make its policy more sustainable, for example, by allowing bond yields to move more flexibly around its target. But these measures have done little to revive the bond market and did not render assistance to banks.