BOJ to test credibility with inflation forecasts as reviews policy
* Policy seen on hold; decision expected 0330-0530GMT
* BOJ to revise up FY2013, FY2014 CPI forecasts
* BOJ to project 2 pct CPI growth in FY2015 - sources
* Many analysts doubt target can be reached in two years
* Governor Kuroda to brief press 0630GMT
By Leika Kihara
TOKYO, April 26 (Reuters) - The Bank of Japan will probably project on Friday that it will meet its 2 percent inflation target in two years due to its massive stimulus plan, a forecast analysts say may be too optimistic and which could put its credibility on the line.
In a reminder of how ambitious the target is, data due out on Friday is expected to show that core consumer prices, which exclude volatile food but include oil costs, fell 0.4 percent in March from a year earlier.
The central bank, charged with overturning years of dogged deflation, is likely to hold off on offering any fresh policy initiatives after new Governor Haruhiko Kuroda stunned markets on April 4 by promising to inject about $1.4 trillion into the economy to hit the inflation target in roughly two years.
Instead, the focus will be on the BOJ's economic forecasts to be released in its twice-yearly outlook report and how they compare with private-sector economists, many of whom argue that achieving 2 percent inflation in two years is unrealistic.
Kuroda has vowed to do what ever it takes to achieve the price target in two years, putting the central bank's reputation on the line to restore an inflation level that has rarely been hit since the early 1990s.
"The BOJ's easing is clearly working because it made a strong commitment," Prime Minister Shinzo Abe told parliament on Thursday, praising the central bank's latest action.
The BOJ is set to maintain a pledge to expand base money, its new policy target, at an annual pace of 60 trillion yen ($604 billion) to 70 trillion yen. Base money is the combined amount of cash and deposits parked with the central bank.
The BOJ is likely to forecast that core consumer prices will rise about 1.5 percent in the fiscal year to March 2015, sources have said. That is above its current forecast for a 0.9 percent increase. It excludes the impact of an expected sales tax increase in 2014.
It is also likely to add an extra year to projections to show that by the fiscal year ending March 2016, the core consumer price index will be rising at a pace of 2 percent over a year earlier, meeting the BOJ's inflation target, the sources said.
But such forecasts, based on the median expectations of the BOJ's nine board members including Kuroda, will be much higher than private-sector projections.
A poll this week of 10 analysts showed most of them expect core CPI to rise around 0.5 percent in the year to March 2015, a third of the pace that the BOJ is expected to project. They forecast core inflation of around 1 percent in fiscal 2015/16, half the pace expected in the BOJ's numbers.
That poses a dilemma for the BOJ because its policy relies so much on shaping market and public expectations, or trying to nudge people into spending more on the belief that prices will finally start to rise in the future.
A lack of progress in meeting the target may undermine public expectations of future price moves and force the BOJ into taking further monetary action despite unleashing the world's most intense burst of monetary stimulus earlier this month, some analysts say.