At a two-day policy meeting that kicked off Thursday, the Bank of Japan is expected to maintain its aggressive monetary stimulus in light of the economy's moderate improvement.
Despite the stimulus, core consumer prices in April rose just 0.3 percent from a year earlier, far below the central bank's 2 percent inflation target. Real gross domestic product in the January-March quarter grew for the fifth consecutive quarter but by an uninspiring annualized rate of just 1.0 percent, due to tepid household consumption.
In its quarterly economic outlook report in April, the BOJ upgraded its assessment of the economy to "moderate expansion."
The decision-making Policy Board — consisting of Gov. Haruhiko Kuroda, two deputy governors and six other members — is expected to discuss whether current conditions warrant further optimism.
The meeting comes after the U.S. Federal Reserve decided Wednesday to further tighten monetary policy by raising its key interest rate for the second time this year, while also laying out a plan to reduce its portfolio of bonds and other assets.
The BOJ employs measures including a negative short-term interest rate and massive purchases of Japanese government bonds to keep long-term rates near zero percent, encouraging banks to lend more to boost economic activity.
Financial markets will also be paying close attention to Kuroda's post-meeting news conference on Friday for any mention of an eventual exit from the stimulus.