By Leika Kihara
TOKYO (Reuters) - The Bank of Japan is set to maintain its massive stimulus next week, as supply bottlenecks caused by factory shutdowns in Asia weigh on an economy already wobbling from the hit to consumption from the pandemic.
The rate review comes ahead of a ruling party leadership race that may shift the administration's focus away from the current stance based on former premier Shinzo Abe's "Abenomics" reflationist policies, some analysts say.
BOJ Governor Haruhiko Kuroda is likely to be grilled on his views on the candidates' stance at his post-meeting briefing.
At the two-day meeting ending on Wednesday, the BOJ is set to maintain its short-term interest rate target at -0.1% and that for 10-year bond yields around 0%.
While it will stick to its view the economy will recover moderately, the BOJ is expected to offer a bleaker view on exports and output as Asian factory shutdowns caused by the pandemic force Japanese manufacturers to slash production plans, sources have told Reuters.
"The economy is stagnating in the current quarter, which is causing some delay in Japan's recovery," said Mari Iwashita, chief market economist at Daiwa Securities. "There's a good chance the BOJ may revise its view on output," which could remain weak for the rest of this year, she said.
The ruling party race likely won't lead to any change in the BOJ's near-term policy with the candidates agreeing on the need to maintain massive monetary support for now. But it could affect the long-term path toward whittling down stimulus.
Frontrunner Taro Kono has cast doubt on the feasibility of clinging to the BOJ's 2% price goal. Another strong candidate, Fumio Kishida, has long called for an exit strategy from the BOJ's massive stimulus.
The winner, who is assured to become next premier, may also preside long enough to affect the choice of successors to Kuroda and his deputies, whose term ends in 2023.
"The BOJ has been adjusting its extraordinary stimulus in several stages," such as by slowing bond buying and effectively terminating risky asset purchases, said Yasunari Ueno, chief market economist at Mizuho Securities.
"The choice of BOJ leadership will be crucial to whether such fine-tuning will continue, or another blow of stimulus will eventually be deployed," he said.