The Bank of Japan will probably maintain an upbeat view of the economy at a two-day policy meeting starting Wednesday despite signs of a slowdown due to the sales tax hike, sources close to the issue said.
The central bank is also expected to keep its policy steady and continue a massive asset-purchase program to increase the amount of money in circulation and achieve its 2 percent inflation target in or around the fiscal year starting next April, the sources said Friday.
The nine-member Policy Board, headed by BOJ Gov. Haruhiko Kuroda, will review the most recent economic data, most of which point to a slowdown in growth, including sluggish private consumption and weak recovery in industrial output, after the government raised the consumption tax to 8 percent from 5 percent on April 1.
But according to the sources, the board is seen taking heart from other evidence of increased inflation, while also judging whether a mechanism has been established for generating a virtuous cycle in which rising prices lead to income growth.
After its policy meeting earlier this month, the BOJ said the economy "continued to recover moderately" despite the negative effects of the sales tax hike. It will likely maintain that assessment, the sources said.
The BOJ's preferred inflation gauge, the core consumer price index, which excludes fresh food prices because of their volatility but not energy, rose 1.3 percent in July from a year earlier after factoring out the tax hike.
Despite weak household spending at present, the BOJ is also likely to retain its view that private consumption has remained resilient as the employment and income situation has steadily improved, the sources added.