The Bank of Japan, which last month raised interest rates for the first time in six years, is expected to keep its powder dry this week as it confirms that economic growth is slowing and with inflation yet to materialize.

After more than five years of holding rates at zero, the Japanese central bank joined its U.S. and European counterparts in embarking on a rate rising campaign, lifting the overnight call rate to 0.25 percent from zero on July 14.

The BOJ would like to remove excessive monetary stimulus as quickly as possible, but the pace of rate increases in Japan is expected to be much slower than in the United States and Europe.

We expect monetary policy to remain unchanged until the end of the year, said Akira Maekawa, an economist at UBS.

Others expect the BOJ to raise the overnight call rate target by another 25 basis points to 0.50 percent around December.

The BOJ will hold a two-day policy-setting meeting ending on Friday.

In the meantime, all eyes are on the Federal Reserve.

Lackluster U.S. jobs data last week cemented expectations that the Fed will opt not to raise rates at a meeting on Tuesday. A Reuters poll on Friday showed 17 out of 22 U.S. primary dealers expect the Fed to pause after raising interest rates at 17 consecutive meetings since 2004.

Still, the market will not be convinced the Fed is done with its tightening cycle until it confirms that slowing growth will rein in inflationary pressures. Only seven of those polled believed the Fed was done raising rates.

Meanwhile, inflationary concerns have prompted rate increases in Europe.

The European Central Bank picked up the pace of its rate increases on Thursday, raising them after two months compared with quarterly intervals previously, and is expected to raise rates again in October.

Also on Thursday, the Bank of England surprised markets by raising interest rates for the first time in two years, citing rising inflationary concerns.

DATA DEPENDENT

The BOJ has said rates will be adjusted gradually if the economy moves in line with its scenario of a moderate expansion.

Adjustments in interest rates will be done gradually by carefully assessing economic activity and prices, Board member Atsushi Mizuno said on Wednesday.

BOJ members including Governor Toshihiko Fukui and board members Miyako Suda and Mizuno have said markets should not rule out another rate rise by the year-end. The three are considered among the more hawkish members of the BOJ's nine-member board.

But the markets seem unconvinced so far.

As the U.S. economy continues to slow and the Fed considers halting further rate hikes, there is a risk that these effects will gradually be felt in Japan, said Naomi Hasegawa, a senior fixed income strategist at Mitsubishi UFJ Securities.

Until the situation becomes clearer, many market participants feel it would be unwise to rush to sell JGBs.

Gross domestic product (GDP) data to be released on Friday is expected to show growth in Japan's economy slowed in the three months to June.

A Reuters poll predicted GDP grew 0.4 percent in April-June from the previous quarter in price-adjusted terms.

On an annualized basis, GDP likely expanded 1.8 percent, slowing from 3.1 percent growth in January-March, according to the median forecast in a poll of 26 analysts.

The data will be released at 8:50 a.m. on Friday (2350 GMT Thursday).

U.S. GDP growth slowed to an annualized 2.5 percent in April-June, down from 5.6 percent growth in the first quarter.

But even if U.S. growth slows to 2 percent, Japan's economy can withstand the slowdown as domestic fundamentals are strong, sources close to the BOJ said.

Japan Inflation