TOKYO (REUTERS) - The Bank of Japan is expected to embark on a bold experiment of pulling out all the stops to get prices rising after nearly two decades of deflation, starting with boosting asset purchases and targeting longer-dated government bonds.
But new governor Haruhiko Kuroda may struggle to build a consensus for a radical overhaul of the bank's policy framework in a board divided on how much it should ramp up bond buying and how to convince markets it will not monetise public debt.
The policy meeting, the first one chaired by Mr Kuroda since he assumed the post on March 20, will be a big test of his leadership in steering the central bank toward untried and unorthodox measures to meet its new 2 per cent inflation target set in January.
"Markets are already pricing in the risk that the BOJ may not be able to agree on big monetary easing steps on Thursday," said Mr Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.
"The focus is on Kuroda's message at the post-meeting news conference. What's important is for him to sustain market expectations for more easing in future rate reviews."
At the two-day meeting ending on Thursday, the BOJ is likely to start open-ended asset purchases immediately, rather than in 2014, and boost buying of government bonds and riskier assets such as exchange-traded funds, sources have told Reuters.
The central bank is also expected to extend the duration of bonds it buys in easing policy from the current three years.
But Mr Kuroda wants to do more and combine two separate schemes for buying bonds, to clarify how much the BOJ is expanding its balance sheet and make it easier to buy longer-dated bonds.
That will help Mr Kuroda, mandated by Prime Minister Shinzo Abe to take bolder monetary easing steps, engineer a "regime change" from his predecessor's cautious, gradual approach.
But Mr Kuroda's idea may face resistance from some in the board who are wary of loading up the central bank's balance sheet with too much long-term debt, resulting in a split vote.
Even if he succeeds in muscling through his plans, the BOJ may struggle to live up to expectations as markets are already positioned for aggressive stimulus steps, analysts say.
Under pressure from Mr Abe for bolder efforts to reflate the long-moribund economy, the BOJ eased policy in January and doubled its inflation goal to 2 per cent, a level Mr Kuroda has since pledged to achieve in two years - a target many see as overly ambitious.
Mr Kuroda has said he will do whatever it takes to achieve the price target, but some analysts doubt whether printing more money is the solution.
Base money, or cash and reserves at the BOJ, already hit a record in March but the huge pile of money has failed to end deflation or boost wages.
Mr Abe told parliament on Tuesday that he is not necessarily asking the BOJ to achieve the target "at all costs", as factors beyond the bank's control, such as global economic developments, may sway future price moves.