TOKYO, April 22 (Reuters) - The Bank of Japan is expected to hold off on expanding monetary stimulus next week even though the bank is likely to slightly reduce its inflation forecast for this fiscal year, said sources familiar with its thinking.
In a semiannual outlook report due at a rate review on April 30, the central bank is seen slightly downgrading its core consumer inflation forecast of 1.0 percent for the year that began this month due to the effect of last year’s recession and soft consumer spending, the sources said.
But the nine-member board is likely to project inflation to hit roughly 2 percent in the following two years, they said, signalling that the economy can hit its 2 percent inflation target without additional stimulus.
The policy decision, however, can be affected by the median inflation forecast produced at the April 30 meeting.
While the possibility is slim, BOJ policymakers may opt to ease if the cut in this fiscal year’s inflation forecast is unexpectedly big or if they feel the slowdown in inflation is damaging enough to warrant pre-emptive action, the sources said.
For now, many of them feel that any cut to the price forecast will be minor and would allow the BOJ to hold off on easing, the sources said on condition of anonymity.
At the April 30 meeting, the BOJ will debate monetary policy as well as issue its long-term economic and price forecasts extending to fiscal 2017. (Reporting by Leika Kihara, Sumio Ito and Yoshifumi Takemoto; Editing by William Mallard and Chris Gallagher)