Bank of Japan policymakers meet next week for that most delicate of monetary missions - raising inflationary expectations without scaring households into cutting back consumption.
Having eased monetary policy less than four months ago, the BOJ is set to maintain its "quantitative and qualitative easing" (QQE) stimulus that aims to hit 2 percent inflation by printing money at an annual pace of 80 trillion yen ($672 billion).
At the two-day rate review ending on Wednesday, the BOJ board will scrutinize a batch of mixed data, and is likely to revise up its assessment of exports and output, encouraged by a much-awaited rebound in overseas shipments that will help the economy emerge from recession.
But that is as far as the optimism goes. A number of BOJ officials, including some on the nine-member board, are concerned about the slow recovery in consumer sentiment, hit by last year's sales tax hike and rising import costs from a weak yen.
"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," board member Yoshihisa Morimoto said on Monday.
Several government surveys showed consumer sentiment bottomed out in January, but consumption remains weak as the rising price of groceries hits households long accustomed to deflation.
That weak consumption is a bad omen for the BOJ, which hopes to spur expectations of rising prices so that households will spend more now rather than deferring consumption.
Pessimists on the BOJ board fret that households may continue to hold off on spending unless wages rise significantly, and that exports may not rise much given the murky global outlook.
But many of them are also skeptical of what further easing could do to stimulate growth and believe that expanding QQE again, with further unwelcome falls in the yen, may do more harm than good.
Government officials, including Economics Minister Akira Amari, have signaled that they too would prefer the BOJ to stand pat for now.
BOJ Governor Haruhiko Kuroda remains unfazed, stressing that a weak yen is positive for the economy and that the bank won't hesitate to ease again if needed to hit its inflation target.
Analysts say markets will focus on whether Kuroda sticks to that stance at his post-meeting news conference, and how he assesses the uncertain global economic outlook.
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