The Bank of Japan (BoJ) is widely expected to keep its short-term interest rate target unchanged in the range of 0%-0.1% after a two-day meeting that ends on Friday.
Governor Kazuo Ueda has signaled that future rate hikes will be gradual, saying more evidence is needed to ensure that rises in prices and wages are sustainable. Most analysts predict the next rate increase will take place in either July or October.
BoJ Governor Kazuo Ueda reiterated in parliament on Tuesday that it is appropriate to maintain an accommodative environment for a spell. At the same time, in the U.S., Fed Chair Jerome Powell and other officials have signaled that it may take longer to cut rates.
In fresh quarterly projections due after the meeting, the nine-member board will likely cut its economic growth forecast for the current year due to weaker output and consumption. However, the board may raise its projections for inflation to around 2% in fiscal 2024 and 2025 due to the prospect of sustained wage hikes.
The central bank ended eight years of negative rates and other remnants of its unorthodox policy last month, shifting away from its focus on reflating the economy with decades of substantial monetary stimulus.
Markets are looking for clues on how soon the BoJ will hike rates again. Many economists expect this to happen in the third or fourth quarter, with Ueda's recently signaling another hike around summer or autumn this year.
A weak yen complicates the BoJ's policy path. Some market players bet that the central bank could be pressured to hike rates sooner than it wants in order to slow the currency's decline. While Ueda has ruled out directly targeting yen moves in guiding policy, he said that a weakening currency could push up trend inflation by boosting import prices.
The yen has weakened to a fresh 34-year-low against the dollar following the BoJ's most recent rate move.
Japanese Finance Minister Shunichi Suzuki reiterated on Tuesday the commitment of local authorities to collaborate closely with foreign counterparts to address excessive volatility in the foreign exchange market, cautioning against speculative currency movements.
Analysts expect the BoJ to spend at least a few more months to gauge whether trend inflation will steadily accelerate toward its target and durably stay there, as it projects.