The Bank of Japan is expected to cut this fiscal year's economic and price forecasts when it issues fresh quarterly projections at next week's rate review, sources familiar with its thinking said.
Any such downgrade is unlikely to trigger an immediate expansion of monetary stimulus, as the central bank is set to maintain its scenario that the world's third-largest economy is headed for a moderate recovery, the sources said.
“It's somewhat weaker than three months ago,” one of the sources said of this fiscal year's growth projections, a view echoed by two other sources.
The main reason for the downward revision in growth is the bigger-than-expected economic slump in April-June and soft consumption during the summer, the source said.
In the current projection made in July, the BOJ expects the economy to contract 4.7% in the current fiscal year ending March 2021. That is more upbeat than a 6.0% fall projected in this month's Reuters poll.
The BOJ's July forecasts were compiled before the release of data that showed Japan's economy shrank an annualised 28.1% in April-June, its worst postwar slump.
The nine-member board is also seen slightly trimming its inflation forecast for the current fiscal year, due largely to the impact of a government campaign offering discounts to domestic travel, the sources said.
The BOJ's current projection is for core consumer prices to fall 0.5% this fiscal year.
The sources spoke on condition of anonymity due to the sensitivity of the matter.