Sources say the Bank of Japan is expected to decide as soon as next week to reduce emergency funding used last year to tackle a pandemic-induced cash crunch, following the lead of other central banks in gradually phasing out crisis-mode policies.

During a two-day rate review ending on December 17, the BoJ is expected to keep its ultra-loose monetary policy in place but discuss whether to extend its emergency pandemic-relief programmes beyond the current March 2022 deadline.

While details are still being worked out, four sources familiar with the board's thinking say the board is leaning toward tapering the BoJ's corporate bond and commercial paper purchases following sharp improvements in big enterprises' funding conditions.

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Another funding scheme aimed at smaller businesses may be reduced as well, though a portion of it may be extended beyond March to assist retailers still battling with low consumer demand, they said. It will be a close call, and the decision could be postponed until January if the spread of the Omicron coronavirus variant raises uncertainty about the fragile economic recovery, they added.

"The programmes were designed to be emergency measures," one source explained, "therefore they must come to an end at some point."

"With Omicron clouding the outlook, the timing is tough," another source added.

There is no agreement on the final decision yet, which will be based in part on whether the spread of Omicron disrupts markets or causes the government to tighten activity restrictions.

The BoJ's "tankan" business sentiment survey, expected on Monday, will be scrutinised by policymakers for hints on whether corporate funding difficulties have eased sufficiently to allow rolling back crisis-mode funding support, according to the sources.