The Bank of Japan refrained from loosening monetary policy at its first meeting with two new board members as it assessed the effect on the economy of an appreciating currency and Europe’s debt woes.

The central bank kept its asset-purchase fund at 45 trillion yen ($573 billion) and lending facility at 25 trillion yen, according to a statement released in Tokyo today. All 22 analysts surveyed by Bloomberg News predicted no change.

Governor Masaaki Shirakawa and his board may not be compelled to add stimulus unless the yen’s appreciation intensifies. Reports in the past month have shown industrial output and machinery orders missed analysts’ forecasts, an indication the economy may be weaker than the BOJ anticipated, according to economist Seiji Adachi.

“Further monetary easing will basically depend on the yen,” said Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “If the yen strengthens sharply, the BOJ may pursue additional monetary stimulus.”

The central bank kept its benchmark interest rate between zero and 0.1 percent and monthly bond purchases at 1.8 trillion yen. The BOJ’s main policy tool has been purchasing financial securities ranging from government debt to exchange-traded funds to bolster growth.

The yen traded at 78.50 per dollar at 2:37 p.m in Tokyo. The Nikkei 225 Stock Average was up almost 1 percent at 8,958.92, rising for a fourth day. Benchmark 10-year benchmark bond yields at 0.795 percent.

New Members

Takahide Kiuchi and Takehiro Sato, formerly Tokyo-based economists at Nomura Securities Co. and Morgan Stanley MUFG Securities Co. respectively, participated in their first board meeting this week. Both indicated last month that the central bank should weigh pursuing more stimulus or alternative monetary policy tools to help the nation overcome more than a decade of deflation.

“The next focal point will be whether the BOJ will revise down its outlook for prices,” said Koji Ochiai, chief market economist at Mizuho Investors Securities Co. in Tokyo. “No one believes consumer prices will develop as the BOJ predicts.”

Consumer prices excluding fresh food dropped 0.2 percent from a year earlier in June, government data showed last month. The decline was in line with the average for the past ten years, according to data compiled by Bloomberg. The bank forecast last month that core inflation would be 0.7 percent in the fiscal year ending March 2014.

Weakening Recovery

Japan’s recovery from last year’s earthquake is showing signs of weakening as Europe’s debt crisis and slowdowns in China and the U.S. take their toll on the world’s third-largest economy.

Gross domestic product slowed to an annual 2.3 percent in the three months ended on June 30 from 4.7 percent in the previous quarter, according to the median estimate of 24 economists surveyed by Bloomberg News. Machinery orders, an indicator of future capital spending, rose 5.6 percent in June, a government report showed today, missing economists’ estimates for a 12 percent increase.

The yen has strengthened 1.4 percent in the past month against the dollar while the Topix Index, Japan’s broadest measure of stocks, has fallen 2.4 percent as of yesterday. Yields for benchmark 10-year bonds dropped to 0.72 percent on July 23, the lowest since June 2003, highlighting demand for safe assets amid deepening European sovereign crisis.

Strong Yen

Japanese camera maker Nikon Corp. (7731) lowered its forecast for annual profit yesterday, saying global economic growth may slow and a stronger yen may erode overseas profit. Sony Corp. (6758) and Sharp Corp. (6753) also cut profit forecasts this month.

Shirakawa was summoned to testify in parliament 26 days so far this year, the most for any governor since 2003, according to the central bank, an indication of lawmakers’ resolve to have the BOJ step up efforts to help the economy overcome deflation.

U.S. Federal Reserve Chairman Ben Bernanke, European Central Bank President Mario Draghi and Bank of England’s Mervyn King refrained from adding monetary stimulus last week, leaving less pressure on Japan’s central bank, analysts say. The Reserve Bank of Australia also left the key rate unchanged on Aug. 7.

The bank did not remove the minimum bidding rate for bond buying operations. More than a dozen failed operations to supply funding and buy government notes since April prompted the BOJ to scrap a 0.1 percent yield floor last month on purchases of notes up to one year. Anticipating that the bank would get rid of the limit on longer-term, investors have piled into three-year Japanese debt, pushing the yields to the lowest relative to bills on record.

Bloomberg