By Kaori Kaneko and Sumanta Dey
TOKYO/BENGALURU (Reuters) - The Bank of Japan is expected to ease policy later this month, according to a majority of economists polled by Reuters, who said a combination of measures would be used in another attempt to boost anemic inflation.
If that happens, it would come just a few weeks after Prime Minister Shinzo Abe ordered a fresh round of fiscal stimulus following a sweeping election victory in the Upper House, and would underscore the deep malaise rooted in Japan's economy.
"Now with the stimulus being prepared by the government, it is about time for the BOJ to act as well in order to enhance the effect," said Stefan Grosse, economist at Nord/LB.
The yen <JPY=> has already weakened some 5 percent in the past week on speculation of a combination of more monetary stimulus by the BOJ and the government's big economic package.
The government is expected to compile the stimulus package focused on public works projects and payouts to households, and lawmakers are calling for spending of at least 10 trillion yen ($94.50 billion).
More than three years of "Abenomics" - policies that rely on aggressive monetary easing, spending and reforms - have so far failed to generate a sustainable return to inflation and growth.
Japan's core consumer price index, which includes oil products but excludes fresh food prices, fell at the fastest pace in three years in May.
Economists in the poll expect consumer prices to average a 0.1 percent decline this fiscal year, before rising 0.8 percent in the next fiscal, far below the BOJ's 2 percent goal.
The poll taken in the past week found 23 of 27 analysts, or about 85 percent of the sample, predicted the BOJ will ease policy further at its July 28-29 meeting, when it is due to release its latest long-term economic and inflation forecasts. Last month, two-thirds of respondents had a similar call for the BOJ's July policy meeting.
One economist expects a central bank easing will come at the September policy meeting, two project the BOJ will ease in October and one said it would be some time next year.
Eighty percent of economists said the central bank would ease via a combination of measures such as cutting negative interest rates deeper and increasing asset buying such as exchange-traded funds (ETF).
That would take the BOJ's minus 0.1 percent interest rate to minus 0.2 percent in the current quarter and boost its monetary base target to 90 trillion yen from the current 80 trillion yen, the poll showed.
The BOJ's aggressive monetary stimulus has already pushed down Japan's sovereign bond yields to record lows and many analysts in the survey expect the benchmark 10-year JGB yield <JP10YTN=JBTC> to fall as low as minus 0.350 percent this year.
But the yen, which tends to strengthen against the U.S. dollar on investor demand for safehaven assets, is expected to be crucial for the BOJ's and government's policies.
Analysts project Japan would step into currency markets if the dollar range shifts to 94-90 yen, although many expect it to stay above 95 yen this year. On Tuesday, the dollar was trading around 105.80 yen <JPY=EBS>.
"Even though pressure on the yen's appreciation in the wake of Brexit has subsided for now, the current foreign exchange level will lower manufacturers' profits," said Atsushi Takeda, chief economist at Itochu Economic Research Institute.
"And I cannot deny the possibility that deflationary pressure will rise via such low corporate profits, weak capital spending and sluggish wages."
The poll also found the economy will grow an annualized 0.6 percent in the current fiscal year and 0.9 percent next fiscal year. That compared to growth expectations of 0.7 percent and 0.8 percent, respectively, in last month's survey.
The BOJ will factor in the government's planned fiscal stimulus package in producing new quarterly projections this month, which will help moderate any cuts to its inflation forecasts, sources familiar with its thinking said.
($1 = 105.8200 yen)
(Reporting by Kaori Kaneko; Writing by Sumanta Dey; Polling by Shaloo Shrivastava; Editing by Ross Finley and Sam Holmes)