The Bank of Japan (BOJ) is expected to discuss whether to raise interest rates when they meet next week and unveil plans to cut bond purchases by about half over the next few years, sources said. This signals their determination to gradually reduce the massive monetary stimulus.
Interest rate decisions will depend on how long BoJ board members choose to wait for certainty on whether consumption will recover and keep inflation stable around the bank's 2% target, a number of views found.
More than three-quarters of economists polled by Reuters expected the central bank to keep interest rates on hold this month and possibly change them in September or October, but sources suggested the outcome of the July 30-31 meeting was less certain.
Although the nine members agreed in general on the need for a rate hike in the near future, there was no consensus on whether it should happen next week or later this year, they said.
Core inflation hit 2.6% in June, above the BOJ's target for more than two years, and workers' basic wages rose by the most in three decades in May, enough for rate hikers to argue that the current situation is ripe for a rate hike.
However, recent weak consumption data and household sentiment are helping the cautious to hold off for now and wait for more data to see if tax cuts and wage increases will boost consumption as projected.
"What is clear is that the BOJ is likely to raise rates in the coming months. It's just a matter of time," said one BoJ member.
BOJ Governor Kazuo Ueda has said that the central bank will raise rates if it is confident that strong economic growth and wages will keep inflation around 2% over the next few years, as projected.
