By Stanley White
TOKYO (Reuters) - The Bank of Japan is expected to maintain its massive monetary stimulus on Tuesday on a view the economy can weather a sales tax increase in April without extra support, although there is expected to be some concern about weakness in exports.
The BOJ board can point to strength in industrial output, labor demand and consumer spending to back its view the economy will continue a gradual recovery and its 2 percent inflation target is achievable over the next 12 months or so.
There is some concern within the BOJ about slow exports, but pessimists are not expected to have the numbers to tip the votes toward a downgrade of the central bank's stance that export growth will eventually rebound.
"The BOJ can continue to argue that the underlying recovery is ongoing and that excess slack in the economy is decreasing," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. "We do not expect any major moves."
After its two-day meeting ends on Tuesday, the central bank is widely expected to maintain its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($590-$690 billion).
The BOJ launched the stimulus last April, saying it would lift inflation to 2 percent by around two years via aggressive asset purchases as it sought to end 15 years of deflation.
A Reuters poll last month showed economists expect the BOJ to ease policy further around the middle of the year, as they say it will otherwise be difficult to meet the inflation target.
SALES TAX IMPACT
With no policy changes expected, investors will be looking for signs of whether or not BOJ Governor Haruhiko Kuroda will stick to his economic assessment when the central bank reviews its forecasts next month.
Kuroda and other officials have been confident the economy can survive the short-term shock when the sales tax rate rises to 8 percent from 5 percent on April 1.
Consumer spending has been rising as people bring forward purchases to beat the tax rise. A fall is expected when the tax rise takes effect, and some are concerned that it could cause an economic contraction.
Kuroda and other board members have stressed their forecasts assume some volatility in data caused by the tax rise, and that the economy can quickly rebound from any slowdown.
Core consumer inflation reached a five-year high of 1.3 percent in January, supporting the BOJ's view that it will stay above 1 percent and accelerate again later this year. Some BOJ officials think prices are rising a tad faster than expected.
But the main weakness in the recovery story is a ballooning trade deficit. Japan posted a record current account deficit in January as exports continued to lag import growth.
That is undermining the BOJ's argument that exports will pick up pace as the U.S. economy recovers. However, it will likely take a more extensive slowdown in exports to convince optimists in the BOJ to change their assessment.
(Additional reporting by Sumio Ito and Yoshifumi Takemoto; Editing by John Mair)