The Bank of Japan will probably forecast that declines in consumer prices will extend into 2011 even as the economy recovers, sources said.
The estimate would be included in policymakers' first economic projections for the financial year ending in March 2012, scheduled for release in October, said the sources, who declined to be identified ahead of the report. BOJ Policy Board members have already predicted prices will fall 1.3 percent in the current year and 1 percent in fiscal 2010.
Prospects for a third year of deflation make it likely BOJ Gov. Masaaki Shirakawa and his colleagues will keep interest rates near zero through next year, analysts said. It would also erode profits at companies.