TOKYO (Reuters) - The Bank of Japan may show more confidence that the economy is bottoming out next week but keep monetary policy steady for the second straight month, holding fire ahead of a leadership transition set to trigger bolder action to battle deflation.
The rate review will be the last one for Governor Masaaki Shirakawa and his two deputies, who leave on March 19 after a five-year term spent battling a series of crises from the aftermath of Lehman Brothers' collapse in 2008 to the devastating March 2011 earthquake in Japan.
Markets expect fresh stimulus measures on April 3-4, when Asian Development Bank President Haruhiko Kuroda, a vocal advocate of aggressive easing, could head the central bank. His confirmation hearing in parliament is on Monday.
In next week's review, the BOJ board may debate future options for easing policy but will likely focus more on scrutinizing whether signs of economic recovery are sustainable.
"A policy change in April is almost a given. If so, there's no reason for the BOJ to act next week," said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo.
The BOJ doubled its inflation target to 2 percent in January and made an open-ended pledge to buy assets from next year, under relentless pressure from Prime Minister Shinzo Abe for bolder efforts to revive the economy. It stood pat in February.
Abe nominated Kuroda to head the BOJ and Kikuo Iwata, an advocate of unconventional monetary steps, as deputy governor. In winning December's election, Abe pledged to overhaul monetary policy to revive the stagnant economy. The other nominated deputy governor, Hiroshi Nakaso, is a career central banker.
Abe's push for bolder monetary stimulus has helped weaken the yen to a near three-year low against the dollar, giving the export-reliant economy some relief and the BOJ some breathing space.
With factory output rising and exports showing some signs of life, the BOJ may revise up its assessment of the economy to say it is bottoming out, said sources familiar with its thinking.
That would be slightly more upbeat than last month, when it said the economy "appears to have hit bottom."
The government raised its assessment of the economy in February for the second straight month, saying output has bottomed out and corporate sentiment is improving due to the falling yen and rising share prices.
(Editing by Neil Fullick)
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