A man using his mobile phone walks past the Bank of Japan headquarters building in Tokyo, Japan. (Reuters Photo)

By Leika Kihara

TOKYO- The Bank of Japan is expected to keep monetary policy steady this week, but signal that further interest rate hikes are coming and highlight progress the economy is making in sustaining inflation around its 2 percent target.

A recent slew of comments from BOJ policymakers show the central bank growing increasingly convinced rising wages were supporting consumption and prodding firms to raise service prices, meeting the prerequisite for more rate hikes.

“I’m worried that upside inflation risk may be heightening,” hawkish board member Naoki Tamura said on Thursday, calling for short-term interest rates to be lifted to at least 1 percent as soon as the second half of next fiscal year.

But the central bank appears in no rush to pull the trigger with the policymakers stressing their preference to tread carefully due to still volatile markets. The yen’s recent rise is also taking some pressure off import costs.

“Markets remain unstable,” board member Junko Nakagawa said on Wednesday, adding the BOJ must scrutinize how market moves could affect its economic outlook in setting policy.

At a two-day policy meeting that ends on Sept. 20, the BOJ is widely expected to keep short-term interest rates steady at 0.25 percent , and maintain its view the economy will continue recovering moderately as rising wages underpin consumption.

The BOJ’s policy decision comes two days after the Federal Reserve’s meeting, at which the US central bank is likely to start a long-awaited interest rate cut cycle.