The Reuters' monthly poll - which tracks the Bank of Japan's closely watched quarterly tankan - found the service-sector mood fell but still remained at a relatively high level, underscoring the firmness in domestic demand which drove robust expansion in the second quarter.
Former BOJ Deputy Governor Kazumasa Iwata criticised the central bank's price forecasts as too optimistic and warned that even hitting 1 percent inflation could be challenging given a recent batch of weak price data.
The Markit/Nikkei Japan Flash Manufacturing Purchasing Managers Index (PMI) fell to 52.2 in July on a seasonally adjusted basis from a final 52.4 in June.
In a widely expected move, the BOJ maintained the 0.1 percent interest it charges on a portion of excess reserves that financial institutions park at the central bank.
Sayuri Shirai, a former BOJ board member, said the central bank may temporarily accelerate purchases of Japanese government bonds (JGB) to contain rises in bond yield, but won't have to buy huge amounts to cap yields around its zero percent target.
At a rate review on July 19-20, the Bank of Japan is set to keep monetary policy steady and offer a more upbeat assessment of the economy than it did in June to say it is expanding moderately, said sources familiar with the central bank's thinking.
Companies surveyed by the Bank of Japan expect consumer prices to rise 0.8 percent a year from now, higher than their projection for a 0.7 percent increase three months ago.
Japan's low inflation expectations mean its short-term real interest rate, which is calculated by subtracting inflation expectations from nominal interest rates, remains higher than that of the United States, Iwata said.
The group consists of a state-backed fund, the Innovation Network Corp of Japan (INCJ), the Development Bank of Japan (DBJ), as well as U.S. private equity firm Bain Capital.
Service-sector mood rose to a two-year high, evidence of broadening confidence, although the Reuters Tankan also found that confidence was seen slipping over the next three months.
While the BOJ should maintain its ultra-loose policy, it should do so by focusing on capping long-term interest rates under its yield curve control policy, the IMF said.
The BOJ raised its economic assessment. It increased its real gross domestic product (GDP) growth forecast for the 2017-18 fiscal year to 1.6 percent from the 1.5 percent projected in January. But it lowered its core consumer price index (CPI) growth forecast to 1.4 percent from 1.5 percent in the same period.
Governor Kuroda will also dispel market speculation the BOJ is engaging in "stealth tapering" by stressing that the recent slowdown in the bank's bond buying is not intentional and simply the result of a stable bond market, say sources familiar with its thinking.
But while the central bank reached a major milestone in money printing, it is nowhere near achieving the ultimate goal of its policy, to lift inflation to 2 percent, highlighting the difficulty the BOJ is facing as the pace of its bond buying appears unsustainable.
The Reuters' monthly poll - which tracks the Bank of Japan's key quarterly tankan - showed confidence at service-sector firms hit a four-month high, a tentative sign of a pickup in domestic demand.
Positive data issued on Thursday should offer some relief to Bank of Japan policymakers, who hope the economy is now gathering enough momentum to drive up inflation that remains stubbornly below their 2 percent target.
"It will be difficult for the BOJ to adopt what it has to do for an exit strategy whoever takes the post," said Takeshi Minami, chief economist at Norinchukin Research Institute, who saw no reason to replace Kuroda.
Speaking at a lower house fiscal and monetary policy committee meeting, Kuroda affirmed yield curve control as the main focus of monetary policy.
Speaking in the lower house fiscal and monetary policy committee, Kuroda said that the BOJ would adjust policy if needed, but that the central bank had recently upgraded Japan's economic outlook and the global economy was growing stronger.
"Infrastructure needs are huge and it's simply not possible for the Asian Development Bank and the World Bank to fill the gap completely," Kuroda, who was formerly head of the ADB, tolda seminar hosted by an ADB-affiliated think tank.
Kuroda also said that while Japan's economic prospects were brightening, inflation was lacking momentum and justified maintaining the BOJ's massive monetary stimulus for some time.
Kuroda, speaking in the upper house of parliament, also said he felt the BOJ would be able to manage its exit smoothly, including reducing the size of its balance sheet.
Service-sector sentiment improved for the first time in six quarters and companies remained upbeat on their capital expenditure plans, the Bank of Japan's "tankan" survey showed, offering hope the economic recovery will gather momentum in coming months.
The Bank of Japan's quarterly tankan business sentiment survey will likely show the headline index for big manufacturers' sentiment improved by four points to plus 14 in March from plus 10 in December, the poll of 19 economists found.
But household spending remained soft and consumer inflation was flat when stripping away the effect of rising energy costs, underscoring the challenges the Bank of Japan faces in generating sustained price rises backed by steady wage growth.