This photo shows the Bank of Japan headquarters building in Tokyo. (Mainichi)

       TOKYO (Kyodo) -- The Bank of Japan on Tuesday began a two-day policy-setting meeting to assess economic risks from an extended COVID-19 state of emergency at home and supply chain disruptions in Southeast Asia.

       The BOJ is widely expected to maintain its ultraloose monetary policy, a week before the ruling Liberal Democratic Party chooses its next president -- and almost certainly Japan's next prime minister as the party controls the powerful lower house.

       Regardless of who will succeed Prime Minister Yoshihide Suga, some BOJ watchers say the Japanese central bank would need to keep its accommodative policy settings as the coronavirus pandemic is not yet over and its 2 percent inflation target is far from being achieved.

       That draws a sharp contrast with the United States, where investors are focused on when the Federal Reserve will start reducing its asset buying program and begin raising interest rates after recent sharp price increases. The U.S. central bank is also holding a policy-setting meeting on Tuesday and Wednesday.

       After robust overseas demand helped Japan's recovery from the initial shock of the pandemic, surging COVID-19 cases in Southeast Asia have made it difficult for Japanese manufacturers like Toyota Motor Corp. to procure necessary parts, a situation that has forced curbs in output.

       With the state of emergency for populous areas hit by relatively high COVID-19 cases such as Tokyo and Osaka in place until Sept. 30, service providers are still facing difficult times while consumption remains subdued.

       In the previous policy-setting meeting in July, the BOJ said the Japanese economy has "picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19."

       The coronavirus response is a top priority for all four candidates vying for the LDP presidency, especially after Suga's perceived failure to properly handle the pandemic sent public support plummeting and ultimately led to his decision to resign.

       At the end of the meeting on Wednesday, the BOJ is expected to keep its short-term interest rates at minus 0.1 percent and guide 10-year Japanese government bond yields around zero percent, according to people familiar with the bank's thinking. It will also likely maintain measures to support financially struggling firms amid the pandemic.

       Governor Haruhiko Kuroda, whose current term as BOJ chief ends in April 2023, has acknowledged that the 2 percent inflation target will not be attainable during his tenure. Still, he told a recent online forum that the underlying trend is "somewhat positive" despite the country's inflation rate being lower than in the United States or Europe.

       Vaccination minister Taro Kono, a leading contender in the LDP race in media polls, has said the BOJ's 2 percent target would be "very difficult to achieve" under current circumstances while his rival and former Foreign Minister Fumio Kishida stressed the need to maintain the target because it is a "global standard."

       Japan's core consumer prices excluding volatile fresh food items were down 0.2 percent in July from a year earlier.

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