Sources familiar with the central bank's thinking say that many decision makers at the Bank of Japan are worried about using fewer and fewer policy ammunition in the short term, and the ultra-low interest rates implemented for many years have reduced the profits of financial institutions.
However, sources said that the gloomy outlook is also forcing central bank officials to prepare for another economic downturn and rack their brains to respond.
In addition, uncertainty about the outlook has increased as markets increasingly believe that the Federal Reserve will begin to cut interest rates to offset the impact of the trade war between the United States and China.
Some analysts say that while the current rate cut expectations support stock prices, the Fed's actual rate cuts could push down the dollar and trigger unpopular yen gains, which could damage Japan's export-dependent economy.
"There may not be a need for immediate action," one source said. "But because of the high uncertainty facing the outlook, the Bank of Japan needs to consider how to deal with economic shocks."
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