By Leika Kihara
TOKYO, July 16 (Reuters) - Japanese households' inflation expectations crept up and the ratio of those expecting prices to rise a year from now hit a record high, a quarterly central bank survey showed on Thursday, bolstering the case for further interest rate hikes.
The survey, which followed a separate poll showing corporate inflation expectations rising to record levels, highlights broadening price pressures that will come under scrutiny at the Bank of Japan's next policy meeting
on July 30 and 31.
While the BOJ is set to keep interest rates steady this month, it will likely keep its guard up against inflationary risks, sources have told Reuters.
"When upside price risks are high as in the case now, a delay in making necessary adjustments to the degree of monetary support could materialise such risks and weigh on the economy," BOJ Executive Director Koji Nakamura told parliament on Thursday.
The ratio of households expecting prices to rise a year from now hit 90.4% in June, the survey showed, the highest level since comparable data became available in 2006 and up from 83.7% in the previous survey.
The survey also showed 86.1% of respondents expect prices to rise five years from now, up from 82.6% in March and a nearly two-decade high.
Households expect prices to rise by an average 13.1% a year from now, the survey showed, up from 11.4% in the March poll, and also a record high.
Households' inflation expectations tend to be higher than the actual rate of inflation as their views are strongly affected by price rises of frequently bought daily necessities.
Still, the survey highlights how households are bracing for rising living costs as the Iran war and the weak yen drive up fuel and import costs, triggering a spike in wholesale inflation.
Of those polled, 49.9% said they expect economic conditions to worsen a year ahead, up from 32.8% in March, the highest level since December 2008.
The BOJ raised interest rates to a 31-year high of 1% in June as mounting price pressures heightened the risk of inflation deviating from its 2% target.
Former BOJ board member Seiji Adachi expects the central bank to raise rates again to 1.25% anytime between October and January next year.
"The impact of rising import prices will show up in consumer inflation around autumn to winter, giving the BOJ reason to raise rates," he told Reuters.
"Prices are rising for a wide range of goods, so the BOJ will continue to emphasise the risk of an inflation overshoot."
(Reporting by Leika Kihara; Editing by Sonali Paul and Jacqueline Wong)
