Reuters reports that sources familiar with its thinking said that the Bank of Japan is expected to slightly revise up its economic forecast for next fiscal year on hope the government's stimulus package will moderate the pain from state of emergency measures to combat COVID-19.

Having already extended last month a raft of measures to ease funding strains for firms hit by the coronavirus pandemic, the BOJ is expected to hold off on ramping up stimulus at the Jan. 20-21 policy meeting, the sources said.

The central bank, however, will likely warn of escalating risks from the new state of emergency measures that are set to cool consumption, they said.

In its last projections released in October, the BOJ expected the economy to expand 3.6% next fiscal year, following this year's estimated 5.5% contraction.

The central bank may slightly trim its forecast for the current fiscal year ending in March, reflecting the hit from renewed emergency measures, the sources said.