BOJ to stick to stimulus plan; upbeat on output

However, data showing only a feeble recovery from recession tempers its optimism

The Bank of Japan is set to maintain its massive asset buying stimulus spree on Wednesday and revise up its view on output, even as data showing only a feeble recovery from recession tempers its optimism.

A much-awaited rebound in exports has offered some hope for BOJ policymakers, who prefer to hold off on expanding stimulus for now even as falling oil prices push inflation further away from its 2% target.

Data on Monday confirmed the economy pulled out of recession in the fourth-quarter last year but annualised growth of 2.2% was much weaker than expected, underscoring the lingering impact from a sales tax hike last April.

"Rapid yen declines have pushed up prices of food and other daily necessities. This came on top of falling real income from last year's sales tax hike and so may have burdened households," BOJ board member Yoshihisa Morimoto said last week.

Still, the BOJ is likely to stick to its view that the economy is recovering moderately, and on track to hit 2% inflation next fiscal year as companies raise wages and spending.

With industrial production up 1.0% in December and exports having risen the most in a year, the central bank is also seen revising up its view on output and exports, said sources familiar with its thinking.

At Wednesday's meeting, the BOJ is widely expected to maintain its stimulus programme that pledges to print money at an annual pace of 80 trillion yen ($675 billion).

Markets are focusing on how BOJ Governor Haruhiko Kuroda will respond to criticism, mainly from opposition lawmakers, that his radical stimulus is spurring excessive yen falls that hurt consumer sentiment by driving up import costs.

With the BOJ's massive bond purchases drying up liquidity and heightening volatility in the bond market, many within the BOJ hope to keep policy steady for now. Advisers to Prime Minister Shinzo Abe back the BOJ's wait-and-see stance, worried that more easing could send the yen to damagingly low levels.

Speaking in parliament on Monday, Abe sidestepped the question of whether more easing could backfire on the economy, only saying that "specific monetary policy was left for the BOJ to decide."

Kuroda has been unwavering in his view that a weak yen is good for the economy, and so will reiterate that the BOJ will do whatever it takes to hit 2% inflation, analysts say.