By Leika Kihara and Tetsushi Kajimoto
TOKYO, July 15 (Reuters) - The Bank of Japan kept monetary policy steady on Wednesday and maintained its view that the economy would gradually emerge from the coronavirus pandemic's devastating blow, signalling a pause after delivering stimulus twice so far this year.
But it warned that uncertainty over the outlook was "extremely high" due to various risks, including the possibility of a huge second wave of infections.
"Japan's economy is expected to gradually improve from the latter half of this year. But the pace of recovery will be moderate as the effect of the global coronavirus pandemic will remain," the BOJ said in a quarterly outlook report.
As widely expected, the BOJ maintained its -0.1% short-term interest rate target and a pledge to cap 10-year government bond yields around zero.
It also made no changes to its asset-buying and lending programmes for easing corporate funding strains.
The BOJ loosened policy in March and April focusing on steps to ease tight liquidity, such as boosting asset purchases and creating a lending scheme to channel money to smaller firms hit by the pandemic.
The emphasis on such credit easing steps in battling the crisis has cast doubt on the relevance of yield curve control, a framework that sets interest rates as its main policy target.
While the BOJ has said rate cuts would be among options if it needed to stimulate the economy, analysts warn that doing so could hurt commercial banks' profits and their ability to lend.
Some in the board have called for a reassessment of the BOJ's policy framework as inflation drifts further below its 2% target, minutes of past meetings showed.
BOJ Governor Haruhiko Kuroda may offer some clues on how the pandemic could reshape the central bank's policy framework at his post-meeting news conference scheduled for 3:30 p.m. (0630GMT).
(Additional reporting by Kaori Kaneko and Daniel Leussink; Editing by Jacqueline Wong)
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