TOKYO, July 2 (Reuters) - The Bank of Japan is expected to make only minor changes to its economic and price forecasts in a quarterly review next week, and will hold off on easing monetary policy unless a sudden yen spike threatens the country's recovery prospects, commentators said.
Some market players had expected the central bank to offer further monetary stimulus at its next rate review on July 11-12 to show its determination to beat deflation.
Central bank policymakers will scrutinise the market fallout from overseas events, such as the European Central Bank's policy meeting and U.S. payrolls data later this week, in deciding whether to ease policy again.
BOJ Deputy Governor Hirohide Yamaguchi on Monday maintained the central bank's standing caution that a strong yen could hurt business sentiment, a sign the BOJ stands ready to pull the intervention trigger if risks to the fragile economy heighten.
A recent batch of upbeat data, including Monday's tankan survey, has firmed up the central bank's conviction that the economy, the world's third largest, will resume a moderate recovery without additional stimulus for now.
"So far, there's no clear sign that the economy is facing big enough trouble (that warrants further monetary easing)," said a person familiar with the central bank's thinking.
At the July meeting, the BOJ will also review its quarterly economic and price forecasts. Some analysts have said the bank could ease again because new price forecasts may show a sustained end to deflation is still distant.
BOJ officials, however, say any revision to its price forecasts alone will not automatically trigger action, which will come only when risks to Japan's recovery heighten sharply.
"The BOJ will consider acting when the economic recovery is threatened or there is serious risk to the outlook," said another source, who spoke on condition of anonymity due to the sensitivity of the matter.
That means the central bank is highly likely to stand pat next week unless any sudden turn of events in Europe or weak U.S. payrolls data boost demand for the safe-haven yen or trigger sharp falls in stock prices, analysts say.
"The tankan was better than expected, showing a clear improvement in business sentiment," said Koichi Haji, chief economist at NLI Research Institute in Tokyo. "It certainly gives the BOJ some breathing space and allows it to sit on the sidelines for now," he said.
The central bank is unlikely to make any big changes to its current forecast, made three months ago and roughly in line with private-sector projections, that the economy will expand 2.3 percent in the current fiscal year to March 2013 and grow 1.7 percent the following year, the sources said.
Recent declines in commodity prices may prompt the BOJ to cut its core consumer inflation forecast of 0.3 percent for the current fiscal year but probably just by around 0.1 or 0.2 percentage points, not enough to alter its view that Japan will gradually head toward 1 percent inflation, they said.
Its forecast of 0.7 percent consumer inflation in the following year will likely remain roughly unchanged.
The central bank set a 1 percent inflation target and eased monetary policy in February, and followed up with another monetary stimulus in April to show its determination to beat deflation. It has stood pat on policy since then.
Japan's economy is expected to outperform most of its G7 peers this year with growth of around 2 percent, with earthquake reconstruction spending offsetting some of the pain from Europe's debt crisis, a strong yen and slowing overseas growth.
The BOJ releases long-term economic and price forecasts in its twice-yearly outlook report issued in April and October of each year, and reviews them every January and July.