<div id="readability-page-1">TOKYO, April 28 (Reuters) - The Bank of Japan kept interest rates steady on Tuesday but three of its nine-member board proposed hiking borrowing costs, signalling policymakers' concerns over inflationary pressures from the Middle East conflict. The central bank also sharply revised up its price forecasts and stressed vigilance to the risk of an inflation overshoot, signalling a strong chance of a rate hike in coming months. &#34;While the BOJ kept rates on hold, the three dissenting votes highlight the tensions monetary officials face,&#34; Fred Neumann, chief Asia economist at HSBC in Hong Kong, said, noting energy shocks were fanning inflation and curtailing growth. &#34;Given elevated inflation expectations in Japan, which have increased further due to the energy crisis, the BOJ will need to raise interest rates in due course to prevent price pressures from building further,&#34; he said. As widely expected, the BOJ left unchanged its short-term policy rate at 0.75% in a two-day meeting that ended on Tuesday. In a surprise move, however, three bank board members dissented and instead called for a rate hike to 1.0%. Naoki Tamura and Junko Nakagawa joined Hajime Takata, who unsuccessfully made a solo proposal to hike in March. It was the biggest number of dissents the board has seen since January 2016, when the BOJ adopted negative interest rates by a narrow 5-4 vote. &#34;Given that underlying inflation has been approaching 2% and real interest rates are at significantly low levels, the BOJ will continue to raise its policy rate in response to developments in the economy, prices and financial conditions,&#34; the BOJ said in a quarterly report. The pace and timing of rate hikes will be determined with a close eye on the fallout from the Middle East conflict, it said. The new guidance compared with the previous one that spelled out improvements in the economy as among prerequisites for further rate hikes. The yen rose and the Nikkei stock average fell after the policy announcement, as investors priced in the chance of a near-term rate hike. &#34;I expect the next rate hike to come as early as June. With spring wage talks likely to deliver pay rises on par with last year, the wage-price cycle points to higher inflation ahead,&#34; said Kanako Nakamura, economist at Daiwa Institute of Research. &#34;While uncertainty over the Middle East remains high, ignoring upward price pressures could exacerbate side effects such as yen weakness.&#34; Markets are focusing on comments from Governor Kazuo Ueda at a press conference at 0630 GMT for clues on how the protracted Iran war affects its rate-hike path. The U.S.-Israeli war with Iran has complicated the BOJ's efforts to raise still-low interest rates gradually to levels deemed neutral to the economy, seen by markets at around 1.5%. The BOJ is the first among a flurry of central banks seen keeping policy steady this week, including the U.S. Federal Reserve, as the Middle East war muddles the economic outlook. INFLATION OVERSHOOT RISK In a quarterly outlook report, the central bank sharply revised up its core inflation forecasts for the fiscal years ending March 2027 and March 2028, while slashing its growth forecasts for both years. The BOJ maintained its projection that underlying inflation will converge to levels consistent with its price target sometime between the latter half of fiscal 2026 through 2027. But it elaborated on risks to the growth and price outlook from the Middle East war, adding that its baseline scenario was based on the assumption the conflict will not lead to huge supply chain disruptions or a prolonged spike in oil costs. With companies already keen to pass on rising costs, price pressures from high oil prices could spread to various goods and services more than they have in the past, the report said. &#34;The BOJ must pay particularly strong attention to the risk of inflation deviating sharply upward and thereby exerting an adverse impact on the economy,&#34; it said. Japan's heavy reliance on oil imports makes its economy vulnerable to surging oil prices and supply disruptions from the effective closure of the Strait of Hormuz. But the risks of looking through war-driven price pressures have increased as firms become keener to pass on higher costs including from a stubbornly weak yen, keeping inflation above the BOJ's 2% target for four years. The slow pace of BOJ rate hikes has weighed on the yen and kept it near the 160-per-dollar level that had triggered currency intervention in the past. Finance Minister Satsuki Katayama said on Tuesday the government was ready to take action against foreign exchange volatility, reiterating Tokyo's resolve to intervene in the market to counter excessive yen falls. Nearly two-thirds of economists polled by Reuters expect the BOJ to raise its benchmark rate to 1.0% by end-June. (Reporting by Leika Kihara and Makiko Yamazaki; additional reporting by Satoshi Sugiyama and Kantaro Komiya in Tokyo and Ankur Banerjee in Singapore; Editing by Sam Holmes)</div>

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The Bank of Japan (BOJ) maintained its interest rate at 0.75% but three board members proposed a hike to 1.0%, indicating concerns over inflation due to the Middle East conflict. The BOJ revised its inflation forecasts upward and warned of potential inflation overshoot risks. Economists expect a rate hike as early as June, driven by rising inflation expectations and wage increases. The yen rose while the Nikkei fell post-announcement. The BOJ's cautious approach is influenced by the ongoing geopolitical tensions and their impact on economic conditions.

- The Bank of Japan maintained its policy rate at 0.75% but faced dissent from three board members advocating for a rise to 1.0%, reflecting concerns over inflation from Middle Eastern conflicts.  
- The central bank significantly raised its price forecasts while warning of inflation risks, suggesting potential interest rate hikes in the coming months.  
- Market reactions indicated a rising yen and a declining Nikkei index, as attention turned to the impact of geopolitical instability on Japan’s monetary policy trajectory.

BOJ keeps rates steady but hawkish split points to June hike