By Leika Kihara

TOKYO (Reuters) -Bank of Japan policymakers discussed the need to go slow in raising interest rates as jittery markets clouded the outlook, a summary of their September meeting showed, reducing the chance of a near-term rate hike.

The summary also showed how the U.S. Federal Reserve’s decision to deliver an oversized reduction in borrowing costs, which came a day before the BOJ’s Sept. 19-20 meeting, led to increased worries about the U.S. economic outlook.

“Uncertainties have heightened about the U.S. economy and the pace of rate cuts by the Fed. Attention needs to be paid to the possibility that these factors will have a negative impact on the yen’s exchange rates and corporate profits in Japan,” one member was quoted as saying.

Even a proponent of future rate increases called for patience in pulling the trigger, the summary showed, a turnaround from the previous meeting in July when many in the nine-member board voted for a rate hike to pre-empt the risk of too-high inflation.

“I remain convinced that if it’s confirmed that there will be no major downward revision to our outlook, it’s desirable to raise rates without taking too much time,” another member was quoted as saying.

“But rate hikes should not be an end in itself,” the member said, calling for the need to wait for the “appropriate” timing in pushing up borrowing costs.

Given economic and market uncertainties, it was undesirable for the BOJ to raise rates further at this point as doing so might suggest the central bank was shifting to a full-fledged monetary tightening cycle, a third opinion showed.

“Overseas economic uncertainties have heightened. We should scrutinise overseas and market developments closely for the time being,” a fourth opinion showed, adding that rate hikes can wait until such uncertainties diminish.

At the September meeting, the BOJ kept short-term rates steady at 0.25% and its governor said it could afford to spend time eyeing the fallout from global economic uncertainties, signalling it was in no rush to raise borrowing costs further.

“In sharp contrast to July when optimism over the economy, emphasis on upside inflation risks and calls for additional rate hikes were a clear majority, there were quite a large number of opinions cautious about the outlook in September,” analysts at SMBC Nikko Securities wrote in a research note.

“With a good number of opinions calling for the need to scrutinise downside economic risks, it’s hard to predict the BOJ raising rates in the near future,” they said, projecting the next hike to come in January next year.

The BOJ ended negative rates in March and raised short-term borrowing costs to 0.25% in July on the view Japan was making progress towards durably achieving its 2% inflation target.

The July rate hike and Governor Kazuo Ueda’s hawkish comments, coupled with weak U.S. labour market data, triggered a spike in the yen and stock market rout in early August. Since then, BOJ policymakers have stressed the need to take into account the economic fallout from market volatility.

The BOJ next reviews rates on Oct. 30-31, when the board also releases fresh quarterly growth and price forecasts. It holds another meeting in December.

A majority of economists polled by Reuters on Sept. 4-12 expected the BOJ to raise rates again by year-end.

“In conducting monetary policy, it’s necessary to give due consideration to downside risks to Japan’s economy and monitor data carefully,” one member was quoted as saying, highlighting how the BOJ’s focus was shifting away from the risk of an inflation overshoot towards underpinning a fragile recovery.

Another member said the yen’s sharp reversal from past weaknesses could hurt exports and discourage manufacturers from raising wages, the summary showed.

The departure of Prime Minister Fumio Kishida, who appointed Ueda and nodded to the BOJ’s policy normalisation, adds to uncertainty over the bank’s efforts to push up interest rates.

Shigeru Ishiba, who was appointed as new prime minister on Tuesday, said on Sunday Japan’s monetary policy must remain accommodative as a trend.

Economic data pointed to continued moderate recovery, with robust corporate profits underpinning capital expenditure.

The BOJ’s “tankan” survey released on Tuesday showed big manufacturers’ sentiment held steady in the three months to September, despite headwinds from soft global demand.

“As for the next rate hike, I’m focusing on developments in consumer inflation, momentum toward next year’s wage talks and U.S. economic developments,” one board member was quoted as saying in the September summary.

The summary of opinions does not identify the name of the board member who made the comment.

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

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