Tokyo: The Bank of Japan is set to maintain its massive stimulus programme on Tuesday and signal its conviction that a steady economic recovery will help achieve its ambitious price target without immediate, additional monetary easing.
A slump in oil prices has slowed annual core consumer inflation to 0.2 percent in January, well below the BOJ`s 2 percent target, keeping alive expectations the central bank will top up its already aggressive asset-buying programme this year.
But BOJ policymakers have sent a concerted signal to investors that while they expect inflation to grind to a halt in coming months, they see no need to respond unless the price weakness hits inflation expectations.
Governor Haruhiko Kuroda is seen reinforcing this stance at his post-meeting briefing, while reminding markets that he is ready to act on any sign of change in a broad uptrend in prices.
"The BOJ won`t respond to oil price moves themselves but will closely monitor how they affect inflation expectations," Kuroda told a news conference on Feb. 27.
At Tuesday`s meeting, the BOJ is widely expected to maintain its stimulus programme that pledges to print money at an annual pace of 80 trillion yen ($659 billion).
It is also seen maintaining its view that continued improvements in the economy will nudge companies into raising wages and capital expenditure, helping Japan hit its 2 percent inflation target in the year beginning in April.
Japan`s economy is emerging from last year`s recession thanks to a much-awaited rebound in exports and factory output.
But private consumption remains soft as households continue to curb spending after being hit by last year`s tax hike and the rising cost of living from a weak yen.
Some BOJ board members have pointed to the weakness in consumption as a concern, although Kuroda has been unwavering in his optimism on the outlook for Japan`s economy.
The BOJ has stood pat on policy since expanding its massive stimulus programme in October last year to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained end to deflation.