The Bank of Japan is expected to keep monetary policy steady on Wednesday and lay out projections underscoring its conviction that inflation will head steadily towards its 2 percent target, suggesting no additional stimulus is on the near-term horizon.
Governor Haruhiko Kuroda, however, is likely to remind markets that the central bank is ready to ease policy further if weakness in exports or the pain from a sales tax hike on the economy prove much worse than expected and threaten to derail the inflation goal.
Industrial production rose 0.3 percent in March but manufacturers expect output to slide in April, data showed on Wednesday, a sign the recovery in the world's third-largest economy remains fragile.
At the meeting, the BOJ's policy board is widely expected to vote unanimously to maintain its pledge of increasing base money, its key policy gauge, at an annual pace of 60 trillion to 70 trillion yen ($588-$686 billion).
It will also issue a twice-yearly outlook report that serves as a basis for future policy decisions. The BOJ board members are likely to project consumer inflation will accelerate this year and stay around 2 percent for at least two years from the middle of 2015, sources have told Reuters, reflecting a moderate recovery in the economy.
Such upbeat projections may solidify a growing market consensus that the BOJ will stand pat until around July or even longer, to scrutinize more data for clues on how the economy has weathered the sales tax hike that was implemented this month.
"The BOJ will stress that companies are smoothly passing on the costs of the sales tax hike to consumers, and that this is because of strong demand," said Masaaki Kanno, chief Japan economist at JPMorgan Securities.