TOKYO (Reuters) – The Bank of Japan will likely maintain its massive stimulus programme on Friday and stress that global worries over rising inflation will not distract it from efforts to shield the economy from the coronavirus pandemic’s lingering pain.

A resurgence in infections led the government to impose a new state of emergency in Olympic host city Tokyo less than two weeks before the Games, dashing policymakers’ hope of a strong rebound in growth during the quarter.

The BOJ is thus widely expected to maintain its yield curve control targets at -0.1% for short-term interest rates and 0% for 10-year bond yields at a two-day meeting that ends on Friday.

The BOJ is expected to slash this fiscal year’s growth forecast in a quarterly outlook report due out after the meeting.

The BOJ, however, may upgrade next year’s growth forecast in hope that pent-up demand will emerge as vaccinations proceed, say sources familiar with its thinking.

“The state of emergency is obviously negative for the economy. But vaccinations are speeding up and manufacturers’ profits are pretty strong,” said one of the sources.

The BOJ will also release on Friday an outline of a planned new scheme to boost funding for activities aimed at combating climate change.

Japan is not immune to global commodity inflation with companies seeing input prices rising and some more keen than before in passing the costs onto customers.

The impact of rising fuel costs may lead to a slight upgrade in the BOJ’s inflation forecast for the current fiscal year ending in March 2022, the sources said.

With inflation well below his 2% target, however, Governor Haruhiko Kuroda is likely to stress the BOJ’s resolve to keep its money tap wide open, even as other central banks wind down crisis-mode policies or fret of nagging inflation worries.

Many analysts doubt Japan will see price pressures build up much due to weak domestic demand and wage growth.

For BOJ policymakers, the bigger concern is the risk rising costs squeeze corporate profits, discouraging them from raising wages and hurting the economy, the sources said.

In current projections made in April, the BOJ expects the economy to expand 4.0% this fiscal year and 2.4% the following year. It projects core consumer inflation of 0.1% in the current fiscal year and 0.8% the following year.

Japan’s economy shrank an annualised 3.9% in January-March and likely barely grew in the second quarter, as the pandemic took a toll on service spending.

Analysts polled by Reuters now expect the economy to grow 4.2% in the current quarter, lower than an estimate they made last month, due the hit from new pandemic curbs.

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