By Leika Kihara
Oct 15 (Reuters) - Bank of Japan board member Junko Koeda said on Thursday the central bank should not become overly cautious about raising interest rates given considerable upside risks to inflation.
Koeda said Japan's financial conditions remain accommodative even after the central bank's past interest rate hikes, with little sign higher borrowing costs were hurting household and business activities.
Continued price increases across a wide range of consumer items suggest that underlying
inflation is becoming anchored around the BOJ's 2% target, she said.
With wages also rising steadily, Japan appears to be making more durable progress towards sustained inflation, Koeda said.
"The BOJ should adjust interest rates in a timely manner with an eye on the economic and price situation, while keeping in mind the estimated range of the neutral interest rate," she said in a speech delivered to business leaders in Kumamoto, southern Japan.
The BOJ raised its key rate to a 31-year high last month, and signalled a shift toward preventing underlying inflation from overshooting its target, bolstering expectations of further policy tightening.
While the BOJ may pause in October, it is likely to drop hawkish hints that would reinforce dominant market expectations of a December hike, sources have told Reuters.
(Reporting by Leika Kihara; Editing by Jacqueline Wong and Shri Navaratnam)
