BOJ chief Ueda signals rate hike chance next week, yen jumps

By Kentaro Sugiyama and Leika Kihara

TOKYO (Reuters) -The Bank of Japan will debate whether to raise interest rates next week, Governor Kazuo Ueda said on Wednesday, reiterating the bank's resolve to push up borrowing costs if the economy continues to improve.

The remarks, which echo those made by BOJ Deputy Governor Ryozo Himino on Tuesday, pushed up the yen as markets continued to price in the chance of a rate hike at the bank's next policy meeting on Jan. 23-24.

Speaking at a gathering of regional bank executives, Ueda said the central bank will raise rates if improvements in the economy and prices continue.

The new U.S. administration's economic policy and momentum of this year's wage negotiations in Japan are key in deciding the rate-hike timing, he said.

"There was a lot of positive talk on the wage outlook" when the BOJ's regional branch managers met last week, Ueda said.

"We are currently analysing data thoroughly and will compile the findings in our quarterly outlook report. Based on that, we will discuss whether to raise interest rates at next week's policy meeting and would like to reach a decision."

After Ueda's remarks, the yen rose roughly 0.5% against the dollar to hit 157.225 and the benchmark 10-year Japanese government bond (JGB) yield rose to 1.255%, the highest level since April 2011.

"Markets interpreted Ueda's remarks as sounding positive about a near-term rate hike," said Takuya Kanda, head of research at Gaitame.com Research Institute.

The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July on the view Japan was on track to sustainably meet the bank's 2% inflation target.

Ueda has signalled readiness to raise rates further if broadening wage hikes underpin consumption and allow companies to keep hiking prices not just for goods but services.

ALL EYES ON U.S. POLICIES

Markets have focused on the BOJ's views on wages and the U.S. policy outlook, after Ueda cited uncertainty over the domestic wage outlook and Trump's policies as reasons to hold off raising rates last month.

Since then, there has been growing evidence that companies will keep hiking pay to cope with intensifying labour shortages.

In a quarterly report analysing regional economies released last week, the BOJ said wage hikes were spreading to firms of all sizes and sectors, signalling that conditions for a near-term rate hike were continuing to fall into place.

The remaining hurdle for the BOJ in raising rates next week would be what Trump could say about his plans on tariff hikes after his inauguration on Monday, and how markets could react, analysts say.

UBS expects the BOJ to hike rates to 0.5% next week, barring a market shock caused by Trump, then raise rates again in July and December this year.

"Of course, if financial (risk) markets tumble with a panic-like magnitude after Trump's inauguration on 20 January, the BOJ is unlikely to raise the rate and wait at least one more meeting. But, our current assumption is that there would be no significant shock on and after 20 January," Masamichi Adachi, an economist at UBS wrote in a research note.

(Reporting by Kentaro Sugiyama and Leika Kihara; Editing by Chang-Ran Kim, Shri Navaratnam and Sonali Paul)