BOJ sees chance wages, inflation could overshoot

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan said on Thursday there was a chance wage and price growth could overshoot expectations as labour markets tighten.

In a full version of its quarterly outlook report, the central bank also said service-sector firms were becoming more keen to pass on rising labour costs through price increases.

"There is a possibility that wage growth and inflation may overshoot, accompanied by heightening medium- and long-term inflation expectations, amid a tight job market," the BOJ said in the report.

Japanese firms typically review prices for their services in April, which is the start of a new fiscal year, and October.

In April, an increasing number of service-sector firms raised prices to make up for higher labour costs, the BOJ said.

The key would be whether such changes in price-setting behaviour broaden among service-sector firms in October, and whether the moves will be sustained, it said.

The BOJ raised interest rates on Wednesday, taking another step towards phasing out its radical stimulus due to a growing conviction that Japan is making progress towards durably achieving its 2% inflation target.

In a summary of the outlook report released on Wednesday, the BOJ maintained its projection from April that inflation would stay around its 2% target in coming years.

(Reporting by Leika Kihara; Editing by Jacqueline Wong and Sam Holmes)