TOKYO: The Bank of Japan maintained ultra-easy monetary settings on Tuesday but signalled its growing conviction that conditions for phasing out its huge stimulus was falling into place, suggesting that an end to negative interest rates was nearing.

       BOJ Governor Kazuo Ueda gave no hints on whether the bank could pull short-term interest rates out of negative territory at its upcoming meetings in March or April.

       However, the likelihood of Japan sustainably achieving the bank's 2% inflation target was gradually heightening, he said, pointing to recent steady rises in service prices.

       "Prospects of higher wages are gradually affecting sales prices, which is leading to a gradual increase in service prices," Ueda told a press conference after the BOJ's widely expected decision to maintain ultra-low interest rates.

       "If we get further evidence that a positive wage-inflation cycle will heighten, we will examine the feasibility of continuing with the various steps we are taking under our massive stimulus programm," he said.

       Many market players expect the BOJ to end negative rates sometime this year with a recent Reuters poll showing April as the most likely timing for this to occur.

       At the two-day meeting that concluded on Tuesday, the BOJ left unchanged its short-term rate target at -0.1% and that for the 10-year bond yield around 0%. The central bank has maintained negative interest rates since 2016.

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       "Consumer inflation is likely to increase gradually toward the BOJ's target as the output gap turns positive, and as medium- to long-term inflation expectations and wage growth heighten," the BOJ said in a quarterly outlook report released after the policy decision.

       "The likelihood of realising this outlook has continued to gradually rise, although there remain high uncertainties over future developments," the report said in a newly added phrase on prospects for hitting its price target.

       In the report, the BOJ cut its core consumer inflation forecast for the fiscal year beginning in April to 2.4% from 2.8% projected in October. It slightly revised up its forecast for fiscal 2025 to 1.8% from 1.7%.

       The board left unchanged its forecast that an index gauging trend inflation will hit 1.9% in 2024 and 2025, underscoring policymakers' view the economy is on track for sustainably meeting 2% inflation.

       The BOJ's meeting precedes that of the European Central Bank on Thursday and the U.S. Federal Reserve next week, both of which aggressively tightened monetary policy last year and are now contemplating cutting interest rates ahead.

       Japan has seen inflation exceed the BOJ's target for well over a year. But Ueda had stressed the need to hold off on raising rates until there is more evidence that inflation will durably stay around 2%, accompanied by solid wage growth.

       The BOJ's caution reflects Japan's 25-year history of deflation that had undermined wage growth, and prodded the central bank to keep ramping up stimulus. The last time Japan saw an interest rate hike was in 2007, a move that was later criticised by politicians as premature.

       Surveys and comments from business lobbies have shown an increasing chance Japan's spring wage hikes will be above last year's 30-year high 3.58% for major firms - a key prerequisite set by the BOJ for exiting ultra-loose monetary policy. - Reuters