The Bank of Japan is tipped to ease monetary policy on Tuesday by expanding its asset-purchase program for a second straight month and analysts reckon it won't be the last time either as the central bank ramps up its efforts to prop up a weak economy.
Japan's central bank expanded its asset purchase program in September by 10 trillion yen ($125.4 billion) and markets expect it to boost its bond-buying by another 10 trillion yen at this week's meeting because of recent weak data -- September exports suffered their sharpest decline since the aftermath of the March 2011 earthquake, while business sentiment is at its lowest since 2010.
If the Bank of Japan (BOJ) expands its asset purchase program on Tuesday, it will mark the first time that the central has expanded it stimulus plan for two months running, according to Credit Agricole.
"If they do increase asset purchases this week, it probably won't be their last given the incremental benefit each dose of easing has had on the economy," Kathy Lien, managing director of BK Asset Management in New York told CNBC. "Additional easing has been priced in before the year is up."
The BOJ has increased its asset purchase program by 25 trillion yen so far this year, bringing the total it will pump into financial markets by the end of 2013 to 80 trillion yen, as it tries to ease the pain that weak global demand and a strong currency are having on Japan's export-reliant economy. (Read more: Japan Cabinet Approves $5.3 Billion Economic Stimulus Measures)
BOJ Governor Masaaki Shirakawa signaled earlier this month that the central bank stands ready to expand monetary stimulus further, warning that slowing global economic growth is weighing on business sentiment in Japan and may hurt capital spending.
At the same time, Japan's core consumer prices continue to fall, declining for the fifth straight month in September and evading the BOJ's target of 1 percent inflation.
Japan's central bankers will have a fresh slew of data at their hands when they meet, with jobs, industrial production and household spending figures due out early Tuesday. The data will likely point to weak economic growth, economists say.
"We expect industrial production for September to decline by 3.5 percent month-on-month and it should be weaker than manufacturers' projection of 2.9 percent", said Yoshiro Sato, Japan economist with Credit Agricole in Tokyo, referring to an estimate by manufacturers polled by the government.
"And if the core CPI (consumer price index) inflation rate does not pick up at a reasonable pace, the BoJ would face pressure to do more going forward."
The BOJ may even be forced to cut its 2.2 percent forecast for GDP growth in the business year to March 2013, some economists say. Credit Agricole expects the forecast to be cut to 1.8 percent.
The bank is also set to cut its long-term economic and price forecasts at the rate review , unveiling for the first time its outlook for the year that begins April 2013. It is likely to admit that it will take several more years for Japan to achieve the bank's 1 percent inflation target, sources have told Reuters.
If the bank signals a bleak outlook, the case for easing could be strengthened.
And although a weaker yen will help the economy, the BOJ should do more, said Shane Oliver, head of investment strategy and chief economist, with AMP Capital in Sydney.
Expectations of further monetary policy easing have helped push down a strong yen, which has been a major source of concern for Japan's exporters and policy makers. The yen has weakened 3 percent against the dollar in the past month, trading at about 79.73 on Monday.
"The BoJ has an opportunity to push the yen lower after its fall since mid-September," said Oliver. "I am hopeful that they will speed up the pace of quantitative easing via asset-purchases as deflation is continuing and the Japanese economy is at risk of sliding back into recession."
—By CNBC's Jean Chua.