BoJ's narrative signals dogged commitment to key rate hikes

The Bank of Japan (BoJ) is laying the groundwork for tweaks to its policy language in April, keeping alive the chance of a near-term interest rate hike as the weak yen and Middle East conflict pile inflationary pressures on the economy.

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While the central bank kept rates steady last week, Governor Kazuo Ueda signalled that the bank was shifting away from a focus on downside risks to the economy that required a slow, cautious approach in pushing up borrowing costs.

For one, Ueda said the board will debate next month tweaking guidance that rate increases would come "in accordance with improvements" in the economy-language seen by some analysts as ruling out the chance of a hike when growth was under pressure.

"Even if the economy comes under downward pressure, if we judge that such downward pressure would be temporary and will not affect underlying inflation, it would be possible for us to raise interest rates," he said in unusually hawkish remarks that contrast with his typical emphasis on risks to growth.

Any such change would leave scope for the BoJ to hike rates, even if the board cuts its growth forecasts in new quarterly forecasts due at the April 27-28 policy meeting, analysts say.

Another tweak Ueda revealed was a plan to disclose by summer a new indicator on inflation and an updated staff estimate on Japan's neutral rate of interest, a move he described as part of the BoJ's efforts to enhance communication.

The new price gauge adds to data the BoJ looks at in determining Japan's underlying inflation, or price moves driven by domestic demand rather than cost-push factors.