BoJ turns less gloomy on economy, keeps interest rate hike chance alive

The central bank cited persistent rises in food costs as a potential driver of public perceptions around inflation and underlying price pressures

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The Bank of Japan revised up its inflation forecasts on Thursday and offered a less gloomy outlook on the economy than three months ago, keeping alive the possibility of a resumption in interest rate hikes this year.

The central bank also cited persistent rises in food costs as a potential driver of public perceptions around inflation and underlying price pressures.

"Underlying inflation still remains short of our 2 percent target, but is expected to rise moderately," Governor Kazuo Ueda told a news conference.

"If headline inflation is high for very long, we must be mindful of the risk it could affect underlying inflation," he said, stressing that the BOJ will scrutinise the extent to which companies will keep raising food prices.

In a widely expected move, the BOJ kept short-term interest rates steady at 0.5 per cent by a unanimous vote.

The central bank maintained a pledge to keep hiking borrowing costs if economic and price developments moved in line with forecasts, adding that Japan will see rising wages and prices push underlying inflation towards the bank's 2 per cent target.

Japan's trade deal struck with President Donald Trump this month lowers US tariffs for imports of goods including its mainstay automobiles, easing the pain for the export-reliant economy and clearing a key hurdle for further BOJ rate hikes.