By Leika Kihara

TOKYO (Reuters) -The Bank of Japan debated in June the chance of a near-term interest rate hike with one policymaker calling for an increase without delay to address risks of inflation overshooting expectations, a meeting summary showed on Monday.

The discussion highlights the board’s growing awareness over heightening inflationary pressure in the world’s third-largest economy, which could prod the BOJ to debate raising interest rates as early as its next policy meeting on July 30-31.

The yen’s recent declines have heightened the possibility of an upward revision to the BOJ’s inflation forecasts, which means the appropriate level of its policy rate could move higher, one member was quoted as saying at the June 13-14 policy meeting.

“The BOJ must continue to closely monitor data leading up to the next policy meeting” in July, as upside risks to prices have become “more noticeable,” said another opinion. “If deemed appropriate, the BOJ should raise its policy rate without too much delay.”

The central bank must consider whether further rate hikes are needed as inflation could exceed its forecasts if companies renew efforts to pass on recent rising costs, a third opinion said.

Some in the nine-member board, however, were more cautious about an imminent rate hike, citing the need to scrutinise whether rising wages will lift consumption out of the doldrums, the summary showed.

At the June meeting, the BOJ kept short-term rates intact at a range of 0-0.1% but decided to announce a detailed plan next month on reducing its $5 trillion balance sheet in a sign it was moving steadily towards normalising monetary policy.

With inflation exceeding its 2% target for two years, the BOJ has also dropped hints it will raise short-term rates to levels that neither cool nor overheat the economy – seen by analysts as somewhere between 1-2%.

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.

Japan’s core inflation hit 2.5% in May, accelerating from the previous month’s 2.2% due largely to higher energy levies.

The weak yen complicates the BOJ’s policy path. While it helps keep inflation above its 2% target, the boost it gives to imported goods prices has hurt consumption by pushing up households’ living costs.

The dollar briefly hit 159.62 yen on Friday, not far from the 34-year trough of 160.245 hit on April 29 that prompted Japan to intervene in the market. It stood at 159.87 yen in Asia on Monday.

“Monetary policy is conducted based on the BOJ’s assessment of trend inflation and wage developments, not on short-term developments in the foreign exchange market,” one opinion showed, brushing aside a view held by some market players the bank could hike rates soon to slow the yen’s declines.

(Reporting by Leika Kihara; Editing by Kim Coghill and Sam Holmes)

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