TOKYO (Reuters) – The Bank of Japan is widely expected to keep its ultra-loose monetary policy unchanged on Thursday but signal its readiness to ramp up stimulus if global risks threaten the country’s economic expansion, nodding to the widening fallout from the U.S.-China trade war.

The BOJ is under pressure to respond to growing risks to Japan’s recovery, as a darkening global economic outlook pushes the U.S. Federal Reserve and the European Central Bank to drop hints of further monetary easing.

The Fed kept interest rates steady on Wednesday but said it was ready to battle risks by cutting rates beginning as early as next month, reinforcing expectations that major central banks have now shifted full gear toward topping up – not whittling down – their crisis-mode policies.

Many Japanese policymakers, however, are wary of expanding stimulus any time soon, as years of heavy money printing have left them with little ammunition.

Cutting interest rates deeper into negative territory or lowering its long-term yield target could backfire by putting further strain on financial institutions’ profits, analysts say.

At a two-day rate review that ends on Thursday, the BOJ is thus widely expected to maintain its short-term rate target at -0.1% and a pledge to guide 10-year government bond yields around zero percent.

It is also seen keeping intact a loose pledge to buy government bonds so the balance of its holdings increase by roughly 80 trillion yen ($738 billion) per year.

“The BOJ won’t ease just because the Fed loosens policy,” said an official with knowledge of the BOJ’s thinking.

“The trigger for action is when the economy loses momentum for achieving 2% inflation,” said the official, a view echoed by three other sources.

Japan’s economy expanded by an annualised 2.1% in January-March but many analysts predict growth to slow in coming quarters as the U.S.-China trade row hurts global trade. A scheduled sales tax hike in October may also curb consumption.

Annual core consumer inflation hit 0.9% in April, remaining distant from the BOJ’s 2% target, despite years of massive and radical stimulus.

BOJ Governor Haruhiko Kuroda has told parliament the central bank’s nine-member board will “certainly” debate heightening global risks at this week’s rate review.

At a post-meeting news conference, Kuroda is likely reinforce his view that the central bank is ready to deploy additional stimulus if risks threaten to derail the economy’s path toward achieving its inflation target.

Many in the BOJ prefer to wait for more data, such as the central bank’s “tankan” quarterly business sentiment survey due July 1, to see how deeply the trade tensions could hurt domestic demand, the sources say.

A Reuters poll released this week showed expectations of the BOJ’s next move have shifted amid growing concerns about the economic outlook.

For more than two years, a majority of economists surveyed have said its next policy change would be to tighten the money taps with an eye to “normalizing” settings that have long been at crisis levels.

But now, half the analysts polled June 5-17 said the BOJ’s next step would be to ease even further.

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