The Bank of Japan is expected to hold off on expanding stimulus on Tuesday, holding fast to existing plans to beat chronic deflation even as a sales tax hike clouds the outlook for the world's third-largest economy.
Unfazed by recent signs of weakness in the economy, the central bank is set to maintain its current monetary policy settings at a two-day meeting ending on Tuesday, and affirm its conviction that the economy is on track to meet the target of 2 percent inflation within a year or so.
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A run of recent data has cast doubt on Premier Shinzo Abe's reflationary policies, including the central bank's own "tankan" survey. It showed companies expect inflation to remain subdued in coming years, and see a worse consumer chilling effect from last week's tax hike than from the previous increase in 1997.
But Governor Haruhiko Kuroda and other central bank officials appear unshaken, pointing to positive signs such as shrinking slack in the economy that should help them meet their pledge of accelerating inflation to 2 percent by around April next year.
Supermarkets raised prices on top of the sales tax hike, according to a daily price index maintained by Tokyo University Professor Tsutomu Watanabe, supporting the BOJ's view the economy is now strong enough for retailers to pass the levy to households.