Tokyo stocks buck Asian rally

Hong Kong - Tokyo shares fell on Wednesday, countering a broad rally in Asian markets, after the Bank of Japan (BoJ) slashed its inflation forecast and held off fresh easing measures after a two-day meeting.

The yen rose against both the dollar and the euro on the news, however, as traders took solace in the BoJ's announcement that it was also raising Japan's growth outlook on signs the economy was rebounding.

Shares in Tokyo's benchmark Nikkei 225 index closed 0.49% lower, falling 85.82 points to 17 280.48. The broader Topix index of all first-section issues was down 0.50% to 1 390.61.

Japan was the outlier, however, as a broad rally across Asian markets saw Hong Kong rise 1.48% in the afternoon. Shanghai was up 3.87%.

Sydney closed 85.73 points higher at 5 393.4.

Seoul ended up 0.15% gaining 2.92 points to finish at 1 921.23.

"(BoJ Governor Haruhiko) Kuroda will be under pressure to increase stimulus," Masamichi Adachi, an economist at JPMorgan Chase & Co., told Bloomberg News.

"It must be getting harder for him to communicate with market participants, with the economy expected to recover while inflation is slowing due to oil (prices falling)."

The BoJ said inflation for the year starting in April would come in at 1.0%, well down from an earlier 1.7% forecast. It said the economy would expand by 2.1%, up from its previous expectation of 1.5%.

The price downgrade underscores how the bank's bid to reach a 2.0% inflation target by early next year looks increasingly unlikely. It will fuel speculation that the BoJ will be forced to unleash further stimulus to kickstart the world's number three economy.

Japan's monetary policy announcement comes ahead of another much-anticipated meeting of the European Central Bank (ECB) on Thursday.

Experts broadly expect the ECB to announce a bond-buying scheme aimed at kickstarting lending in the struggling eurozone.

The improved growth outlook pushed the yen higher, to ¥117.73 against the dollar, compared with ¥118.82 a day earlier. It was also at ¥136.39 to the euro, compared to ¥137.24.

The euro, meanwhile, fetched $1.1582 compared with $1.1550 in London.

Oil prices moved higher. The US benchmark, West Texas Intermediate for March delivery, climbed 45 cents to $46.92 while Brent crude for March rose 40c to $48.39.

Gold fetched $1 302.88 an ounce, against $1 291.31 late on Tuesday.