The BOJ, which last month expanded the size of its asset purchases by 10 trillion yen to 80 trillion, said it still faces the challenge of overcoming inflation and returning to sustainable growth and would "proceed with monetary easing in a continuous manner by steadily increasing the amount outstanding of the Asset Purchase Program."
The BOJ has held its overnight call rate unchanged at 0.10 percent since December 2008, and after inflation picked up in the first few months of the year, deflation has now returned.
In August consumer prices fell by an annual rate of 0.4 percent, the same as in July, and the BOJ said it expects annual inflation of around zero percent for the time being.
Japan's economy had been resilient to Europe's debt crises earlier, but it is now feeling the effects.
"Japan's economic activity is leveling off more or less. Exports and industrial production have been relatively weak as overseas economies have moved somewhat deeper into the deceleration phase," the BOJ said in a statement following a two-day meeting of its policy board.
Nevertheless, the bank said domestic demand remained resilient, supported by reconstruction following last year's earthquake, public investment was still rising and housing investment was picking up.
Although businesses have become somewhat cautious due to overseas weakness, fixed investment by business is on a moderately increasing trend and the employment picture is on an improving trend.
In the second quarter, Japan's economy expanded by a 3.2 percent annual rate, up from 2.9 percent in the first quarter, easily beating the pace of other advanced economies.
"Regarding 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 bank added.
The BOJ's board will meet again on Oct. 30 when economists expect it to cut its growth forecasts and possibly increase its asset purchase program.