TOKYO, July 5 (Reuters) - Japan's central bank will cut its inflation forecasts but hold off expanding stimulus this month, people familiar with the matter say, in another sign the bank is retreating from Governor Haruhiko Kuroda's initial pledge to do whatever it takes to achieve his ambitious inflation target.
At a rate review on July 19-20, the Bank of Japan is set to keep monetary policy steady and offer a more upbeat assessment of the economy than it did in June to say it is expanding moderately, said sources familiar with the central bank's thinking.
"The economy is in good shape, so it's time to wait for the positive effects to push up prices," one of the sources said.
But the BOJ is likely to cut its inflation forecast for the current year ending March 2018, and possibly that for the following year, in a quarterly review of its long-term projections to be released on July 20, they said.
The downgrades will likely be minor and reflect the effect of recent oil price falls, companies' reluctance to raise prices and weak inflation expectations, the sources said.
At its April policy meeting, the BOJ said it expects core consumer inflation to hit 1.4 percent in the current fiscal year and 1.7 percent in fiscal 2018. That exceeds a Reuters poll projecting inflation of 0.7 percent in the current year and 0.8 percent the following year.
(Reporting by Leika Kihara; Editing by Sam Holmes)