Bank of Japan chief vows to keep raising interest rates

By Leika Kihara

TOKYO, Jan 5 (Reuters) - Bank of Japan Governor Kazuo Ueda said on Monday the central bank will continue to raise interest rates if economic and price developments move in line with its forecasts.

Japan's economy ?sustained a moderate recovery last year despite the hit to corporate profits from higher ?U.S. tariffs, Ueda said in a speech delivered to the ?country's banking sector lobby.

"Wages and prices are ?highly likely to ?rise together moderately," Ueda said, adding that adjusting the degree of monetary support will ?help the economy achieve sustained ?growth.

The BOJ raised its policy rate to a 30-year high of 0.75% from 0.5% last month, taking another ?landmark step in ending decades ?of ?huge monetary support and near-zero borrowing costs.

Despite the move, Japan's real borrowing costs remain deeply negative with consumer inflation exceeding ?the BOJ's 2% target for nearly four years.

Markets are focusing on the BOJ's quarterly outlook report due at its policy meeting on January 22-23, for clues on how the board views the inflationary impact from recent yen falls.

The yen's weakness ?has ?pushed up import costs and broader inflation, prompting some board members to call for further, steady rate hikes.

The dollar ?rose 0.2% to 157.08 yen on Monday after reaching 157.255 for the first time since December 22. Market expectations of further BOJ rate hikes have pushed up yields with those on the benchmark 10-year Japanese government bond (JGB) briefly hitting a 27-year high of 2.125% on Monday.

Speaking ?before the same banking lobby, Finance Minister Satsuki Katayama said Japan was at a critical stage of shifting to a growth-driven economy, from one mired in ?deflation.

(Reporting by Leika Kihara; Editing by Christopher Cushing and Sam Holmes)