Bank of Japan Deputy Governor Shinichi Uchida said on Friday the central bank will “adjust the degree of monetary support” if the economy and prices move in line with its forecasts, signalling readiness to raise interest rates further.

Economy is recovering

“Japan’s economy is recovering moderately, although there are some weak signs,” Uchida said in a speech at an annual meeting of trust unions. Uchida delivered the speech on behalf of governor Kazuo Ueda.

The deputy governor also said Japan’s underlying inflation is likely to gradually accelerate towards the BOJ’s 2% target, as rising wages and prices heighten inflation expectations.

The BOJ ended eight years of negative interest rates in March and has signalled its intention to raise short-term rates further from the current range of 0-0.1%.

The central bank also decided at last week’s policy meeting to announce a plan in July on how to trim its huge bond buying in the coming one to two years.

BOJ to raise rates

Uchida said the scale of the BOJ’s bond tapering will be “significant,” repeating a comment made by governor Ueda in last week’s post-meeting news conference.

Many market participants expect the BOJ to raise rates again some time this year, though they are divided on whether the timing could come as early as July or later in the year.

The central bank has also been under pressure to embark on quantitative tightening (QT) and scale back its nearly $5 trillion balance sheet to ensure the effects of future rate hikes smoothly feed into the economy.

(Reporting by Leika Kihara; Editing by Himani Sarkar and Shri Navaratnam)