Suda says BOJ should not hesitate over rate rise

SAGA, Japan, Jan 25 (Reuters) The Bank of Japan should not hesitate to raise interest rates if it is convinced the economy is moving in line with its scenario, policy board member Miyako Suda said on Thursday.

The central bank needs to be prepared to take some risks in pursuing a forward-looking policy as missing the right timing in hiking rates could cause big economic swings in the long run, she said in a news conference after meeting business leaders in the southern city of Saga.

Her comments suggest she was one of the three board members who called for a rate hike last week when the central bank decided to hold rates steady with a rare split vote of 6-3.

They also suggest she may call for a rise in rates at the next policy meeting on Feb. 20-21. But financial markets did not react much to her comments, which came as little surprise since she is regarded as one of the most hawkish members of the BOJ's nine-member board.

''If there is a high level of uncertainty, where there are widely varying views on the future economic outlook, careful analysis and time are needed to read the trend out of mixed indicators,'' Suda said in a speech to business leaders.

''But even so, by taking too much time in confirming (data), there is a risk of being too late in raising rates, forcing us to step up the pace of future rate hikes,'' she said.

In deciding against raising rates at last week's meeting the BOJ cited the need to further examine data to gauge the nation's economic outlook. The central bank has kept monetary policy unchanged since last July, when it raised rates from zero in the first rise in six years.

''Her comments suggest she supported a rate hike at the last policy meeting,'' said Koji Ochiai, a senior market analyst at Mizuho Securities.

''Given that, it's hard to tell from her comments whether the BOJ will raise rates in February, because the question is whether people who opposed raising rates will change their minds by the next meeting,'' he said.

UPBEAT ON CONSUMPTION Financial markets remain upbeat about the economy, with the stock market's Nikkei average <.n225> hitting a more than six-year high.

But the lack of a strong signal from the BOJ on the chance of an early rate hike led many market traders to question whether the bank could raise the overnight call money rate to 0.50 percent from the current 0.25 percent next month.

Suda said all BOJ board members share the view that the economy will grow moderately, but the difference is in their views on how soon that may be achieved.

''Personally, compared with the time of the December policy meeting, I think the possibility of the economy fulfilling the BOJ's basic scenario had heightened by the time of the January meeting,'' she said.

''But the policy board meeting makes a decision through a majority vote and each board member decides (how to vote) by analysing data. As such, I absolutely do not know what could come'' in terms of the timing of the BOJ's next rate hike, she said.

She said consumption is likely to have bounced back in the October-December quarter in reaction to the previous quarter's weakness.

That would be positive for October-December gross domestic product data to be released on Feb. 15, which market traders are awaiting for clues on whether the BOJ will hike rates at its meeting less than a week later.

Still, markets may stay divided over the timing of the next rate rise with Suda stressing that a single set of data alone would not affect monetary policy decisions.

She also warned against reading too much into news conferences by BOJ board members and minutes of past policy meetings, saying the central bank would not ''directly suggest the timing of the next policy change'' through them.

Despite the hawkish tone of remarks by some BOJ board members, Economics Minister Hiroko Ota reiterated her caution over the economy and on tightening credit too hastily.

''We share the view that the mechanism under which the strength in the corporate sector is filtering through to households remains intact,'' Ota said in an interview with Reuters on Thursday.

But she said she was focusing on downside more than upside risks for the economy and was not optimistic about the state of personal consumption.

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