The Bank of Japan will maintain its massive monetary stimulus on Thursday and argue that the bigger-than-expected hit from a sales tax rise will be temporary, despite market worries the pain inflicted may make its inflation target harder to achieve.
A recent run of weak data, including a slump in household spending and tepid factory output growth in July, has cast doubt on the BOJ's view that the economy will rebound steadily from a
severe second-quarter contraction caused by the higher tax.
Pessimists on the board may propose offering a bleaker view on aspects of the economy such as industrial output, which the bank currently describes as "increasing as a trend", sources familiar with the bank's thinking say.
But the BOJ is likely to maintain its view that the economy is recovering moderately and stress that the pain of the sales tax increase is starting to ease, with consumption set to benefit from a tightening job market that is pushing up wages.
Offering some relief to policymakers, Japan's Nikkei stock average hit a seven-month high on Wednesday on hopes that a cabinet reshuffle by Prime Minister Shinzo Abe would give fresh momentum to his growth-oriented policies.
"Recent data has been pretty bad, suggesting that the economic rebound in July-September may be weaker than expected.
But many BOJ officials seem to feel the effect of the sales tax hike will be temporary," said Junko Nishioka, chief economist at RBS Securities Japan.
"Of course, if the pain from the tax hike lasts much longer than expected, the BOJ may ease further. Governor (Haruhiko) Kuroda has said the BOJ will act if needed. But that's only central bank rhetoric, so him just repeating the view won't necessarily signal the bank's readiness to ease policy soon."
The BOJ's optimism, however, contrasts with growing doubts among private-sector analysts that the economy can grow strongly enough to see consumer price inflation - now around 1.3 percent
- accelerate toward the central bank's 2 percent target.