By Leika Kihara
TOKYO (Reuters) - The Bank of Japan (BOJ) is set to keep monetary policy steady next week and offer a cautiously optimistic view on the economic outlook, signaling it has taken enough steps for now to cushion the blow from the coronavirus pandemic, sources told Reuters.
The BOJ may slightly cut its growth forecast for the current year to March 2021, but will stick to its view Japan is headed for a moderate recovery later this year as the pandemic's impact subsides, the sources familiar with its thinking said.
"The economy will remain weak for some time but isn't falling off a cliff," one of the sources said.
"Risks to the outlook are skewed to the downside," the source added, a view echoed by two others who spoke on condition of anonymity as they were not authorised to speak publicly.
At a two-day rate review ending on July 15, the BOJ is expected to hold off on expanding stimulus and leave unchanged its short- and long-term interest rate targets after having ramped up stimulus in March and April.
The BOJ will release a quarterly report after the meeting.
A recent steady rise in bank lending and stable markets has given the BOJ some breathing space, even as the world's third-largest economy braces for its worst postwar slump.
While exports and consumption remain weak, policymakers hope the increased asset purchases, a new lending facility for cash strapped firms as well as the lifting of lockdown measures in late May will breathe life back into the economy.
In a rare move that underscored the difficulty of predicting the pandemic's impact, the BOJ released its growth and price estimates in a range in April instead of producing a median forecast of the nine board members.
The BOJ may revert to median forecasts in July and may slightly trim this year's growth projection, the sources said.
In its April report, the BOJ projected the economy will shrink by 3.0% to 5.0% this fiscal year.
A Reuters poll shows Japan's economy is forecast to contract 5.3% this fiscal year, the most it has shrunk since comparable data became available in 1994.
On the BOJ's next move, 26 of 40 economists said they expect it to expand its stimulus, with 18 saying it would happen this year and five predicting it would be next year, the poll shows.