BOJ to signal gradual, steady rate hikes at next policy meeting
Repeats story published on Friday. No change to text.
BOJ meets Sept. 19-20, decision expected 0330-0430GMT Friday
Board likely to keep short-term rates steady at 0.25%
BOJ policymakers eye more rate hikes, but in no rush
Focus on Governor Ueda's briefing 0630GMT Friday
By Leika Kihara
TOKYO, Sept 13 (Reuters) -The Bank of Japan is expected to keep monetary policy steady next week, but signal that further interest rate hikes are coming and highlight progress the economy is making in sustaining inflation around its 2% target.
A recent slew of comments from BOJ policymakers show the central bank growing increasingly convinced rising wages were supporting consumption and prodding firms to raise service prices, meeting the prerequisite for more rate hikes.
"I'm worried that upside inflation risk may be heightening," hawkish board member Naoki Tamura said on Thursday, calling for short-term interest rates to be lifted to at least 1% as soon as the second half of next fiscal year.
But the central bank appears in no rush to pull the trigger with the policymakers stressing their preference to tread carefully due to still volatile markets. The yen's recent rise is also taking some pressure off import costs.
"Markets remain unstable," board member Junko Nakagawa said on Wednesday, adding the BOJ must scrutinise how market moves could affect its economic outlook in setting policy.
At a two-day policy meeting that ends on Sept. 20, the BOJ is widely expected to keep short-term interest rates steady at 0.25%, and maintain its view the economy will continue recovering moderately as rising wages underpin consumption.
The BOJ's policy decision comes two days after the Federal Reserve's meeting, at which the U.S. central bank is likely to start a long-awaited interest rate cut cycle.
A majority of economists polled by Reuters expect the BOJ to raise rates again this year with more than three-quarters of them betting on a December hike. None in the poll projected a rate increase next week.
Markets are focusing on whether BOJ Governor Kazuo Ueda will offer more hints at his post-meeting press conference on how soon the central bank could raise rates again.
The BOJ ended negative interest rates in March and hiked short-term rates to 0.25% in July on the view inflation was on course to hit its 2% target in coming years.
Governor Ueda has stressed the BOJ's readiness to raise rates to levels deemed neutral to the economy, if growth and inflation move in line with the bank's projections.
So far, things seem to be on track. Japan's economy expanded an annualised 2.9% in April-June and inflation-adjusted wages rose for two straight months in July, easing fears that rising living costs will dent consumption.
Capital expenditure continues to grow, though soft demand in China, slowing U.S. growth and the yen's recent rebound cloud the outlook for the export-reliant country.
The BOJ will conduct a quarterly review of its forecasts on Oct. 30-31, where policymakers can scrutinise data such as the bank's "tankan" business sentiment survey due Oct. 1.
Markets and the political calendar are also likely to affect the timing of the BOJ's next rate hike. Japan's ruling party will choose a new leader on Sept. 27, who could call a snap election either on late October or mid-November, analysts say.
The BOJ may prefer to avoid drawing unwanted political attention by hiking rates around the time of the election, which could make a policy shift unlikely at least until December.
"Having raised rates in July, the BOJ can spend time scrutinising developments," said a source familiar with the bank's thinking, a view echoed by another source.
Reporting by Leika Kihara; additional reporting by Takahiko Wada; Editing by Sam Holmes
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