The Bank of Japan is likely to cut its inflation forecasts on Wednesday and may expand loan schemes aimed at boosting lending, hoping to deflect criticism it is sitting idly by as a slump in oil prices pushes inflation further away from its target.
If the new inflation forecast for the next fiscal year from April falls below 1 percent, bolder action cannot be ruled out, such as a full-blown expansion of asset purchases or a cut in the 0.1 percent interest the BOJ pays on excess reserves parked at the central bank, some analysts say.
But many market participants expect the BOJ to save such options for later in the year, with its aggressive purchases already pushing five-year government bond yields into negative territory and 10-year yields to a record low below 0.2 percent.
"What more can the BOJ do? I think the central bank can hold off on action and take a wait-and-see stance for the time being," Kozo Yamamoto, a ruling party lawmaker who is among premier Shinzo Abe's close aides, told Reuters on Monday.
Less than three months ago, the BOJ justified its shock expansion of "quantitative and qualitative easing" (QQE) as aimed at preventing oil price falls and a subsequent slowdown in price rises from weighing on inflation expectations.