By Leika Kihara and Takahiko Wada
TOKYO/TAKAMATSU, Japan (Reuters) -The Bank of Japan must raise interest rates at a "very moderate" pace and avoid hiking prematurely, its policymaker Seiji Adachi said on Wednesday, warning that further yen rises and slowing global demand may weigh on inflation and wage growth.
Adachi said Japan's economy has already met the conditions for normalising ultra-loose monetary policy, with the economy remaining on a firm footing and price rises broadening.
But he warned of various economic uncertainties that required taking a cautious approach in raising interest rates.
The yen may keep rising from multi-decade lows as the U.S. Federal Reserve enters a full-fledged monetary easing cycle, which would push down Japanese import costs and weigh on consumer inflation, he said in a speech to business leaders in Takamatsu, western Japan.
There is also doubts on whether Japanese firms will keep raising wages sufficiently next year due to lingering global risks such as uncertainty over the outcome of the U.S. presidential election, as well as slowing Chinese and U.S. demand.
"Given high uncertainty surrounding global developments, there is significant uncertainty over next year's wage developments in Japan. We must carefully monitor the situation," Adachi said, signalling the need to spend time scrutinising such risks before raising rates again.
The remarks by Adachi, a former economist seen as taking a neutral approach on monetary policy, follow those by governor Kazuo Ueda suggesting the BOJ was in no rush to raise rates.
When asked at a news conference what would be deemed "sufficient" pay increases, Adachi said Japan would need to see wages rise in 2025 at least around the pace seen this year.
A meeting of BOJ regional branch managers, to be held in January, could offer enough clues on next year's wage outlook, he added, suggesting his preference to wait at least until the start of next year before raising rates again.
Japan's largest union group Rengo is considering demanding wage hikes of 5% or more in 2025, maintaining the level of their request made in 2024, Jiji news agency reported on Wednesday.
'VERY MODERATE PACE'
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was on track to stably meet the bank's 2% inflation target.
No policy change is expected at the BOJ's next rate review on Oct. 30-31, though markets are divided on whether the bank could hike rates in December or wait until January.