Photo/Illutration Pedestrians walk past the Bank of Japan building in Tokyo on March 18. (Reuters)

The Bank of Japan is expected to end eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, making a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.

While the move would mark Japan's first interest rate hike in 17 years, it would still keep interest rates stuck around zero as a fragile economic recovery forces the central bank to go slow in any further rise in borrowing costs, analysts say.

The move would make Japan the last central bank to ditch negative rates and end an era in which policymakers around the world sought to prop up growth through cheap money and unconventional monetary tools.

While a majority of economists polled earlier this month had expected the BOJ to wait until April for it to end negative rates, sources say bigger-than-expected pay hikes announced by major firms last week now heighten the chance the bank will make that decision at its two-day meeting ending on Tuesday.

If the nine-member board believes the conditions are right, the BOJ will set the overnight call rate as its new target and guide it in a range of 0-0.1% by paying 0.1% interest on excess reserves financial institutions park with the central bank.

"What we expect overall is a return to a much more simple policy framework that focuses on targeting the front end" of the yield curve, said Izumi Devalier, head of Japan economics at BofA Securities.

"This would be the first rate hike in 17 years, so it has a lot of symbolic significance. But the actual impact on the economy is very small," she said, noting the BOJ will likely maintain its resolve to keep monetary conditions ultra-loose.

Upon exiting its negative rate policy, the BOJ will also ditch its bond yield control and discontinue purchases of risky assets such as exchange-traded funds (ETF), sources have told Reuters, putting a formal end to the radical monetary experiment put in place by former Governor Haruhiko Kuroda since 2013.

There is still a chance the BOJ might wait until April if a majority in the board sees the need to scrutinize more data before pulling the trigger.

A poll taken in March showed 35% of economists expected the BOJ to end negative rates at the two-day meeting ending on Tuesday, up from the previous month's 7% but still below 62% projecting such action at its subsequent meeting on April 25-26.

With an end to negative rates seen as nearly a done deal, the market's attention is shifting to any clues the BOJ could give on the pace of any interest rate hikes thereafter.

The stakes are high. A spike in bond yields would boost the cost of funding Japan's huge public debt which, at twice the size of its economy, is the largest among advanced economies.

An end to the world's last remaining provider of cheap funds could also jolt global financial markets as Japanese investors, who amassed overseas investments in search of yields, shift money back to their home country.

Upon an exit from negative rates, the BOJ is likely to reassure markets that such a move won't be a prelude to the kind of aggressive rate hikes seen in the United States in recent years.

The new guidance could come either in the statement announcing the policy decision, or comments from Governor Kazuo Ueda's scheduled post-meeting news conference.

Under previous Governor Kuroda, the BOJ deployed a huge asset-buying program in 2013, originally aimed at firing up inflation to a 2% target within roughly two years.

The central bank introduced negative rates and yield curve control (YCC) in 2016 as tepid inflation forced it to tweak its stimulus program to a more sustainable one.

As the yen's sharp falls pushed up the cost of imports and heightened public criticism over the cost of Japan's ultra-low interest rates, however, the BOJ last year tweaked YCC to relax its grip on long-term rates.

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