BOJ chief to deliver key speech as pressure mounts for June rate hike

By Leika Kihara

TOKYO, June 3 (Reuters) - Bank of Japan Governor Kazuo Ueda will deliver a closely watched speech on Wednesday that could reveal his thinking on the prospects of a June rate hike, as surging fuel costs from the Iran war broaden price pressures in an already fragile economy.

The speech, due at 0830 GMT, is in focus as a potential signal from Ueda that could reinforce prevailing market expectations that the BOJ will raise short-term rates to 1% from 0.75% at a policy meeting on June 15 and 16.

Ueda faces a tricky balancing act. Failing to pre-commit to a June hike may further weaken the yen, which breached the key 160-per-dollar threshold earlier on Wednesday.

But offering too clear a signal could be risky given the unpredictable nature of the Iran war, with sudden turn of events potentially upending the BOJ's rate plans.

Still, various factors point to strong prospects for a June rate hike. The nine-member board is increasingly swinging in favour of an early move. Three dissented to a decision in April to keep rates steady, while two others warned of mounting price pressures in recent speeches.

Wholesale inflation hit a three-year high in April, alarming policymakers with the speed at which firms passed on costs.

U.S. Treasury Secretary Scott Bessent signalled Washington's desire for BOJ rate hikes, saying last month Ueda would do "what he needs to do" if granted independence by Japan's government.

Since then, dovish premier Sanae Takaichi has refrained from vocally pushing back against an early rate hike.

"I was with the (BOJ) governor throughout the recent G7 meetings, and I feel our views are very much aligned in many respects," Finance Minister Satsuki Katayama told reporters on Wednesday.

Ueda may avoid direct reference of a June hike as the BOJ's April meeting summary showed one board member expressing displeasure over giving explicit policy signals, said Mari Iwashita, executive rates strategist at Nomura Securities.

"Even so, markets will focus on the chance of action if the BOJ signals its intent to keep pushing up rates," she said. "By contrast, if the BOJ has no intention to hike in June, it would need to do some explaining." (Reporting by Leika Kihara)