Bank of Japan chief warns of unstable markets, global uncertainties

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) - The Bank of Japan must focus on the economic impact of unstable markets and risks from overseas, Governor Kazuo Ueda said on Friday, suggesting the central bank was in no rush to raise interest rates further.

Ueda said Japan's economy was recovering moderately and likely to gradually accelerate underlying inflation toward the central bank's 2% target.

But he warned of "still high" uncertainty surrounding the country's recovery prospects, and stressed the need to keep a close eye out on the impact of market volatility on the economy.

"The overseas economic outlook, including that for the United States, remains uncertain, while market moves continue to be unstable," Ueda said in a speech to a trust association meeting, read by Deputy Governor Shinichi Uchida on his behalf.

"For the time being, we must closely monitor such developments with high vigilance, and scrutinise their fallout on Japan's economic and price outlook, risks as well as the likelihood of achieving our forecasts," he said.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was on track to sustainably meet the bank's 2% inflation target.

Ueda has said the BOJ will keep raising rates if inflation remains on track to sustainably hit 2% as it projects. But he has also stressed the bank will spend time gauging how global economic uncertainties affect Japan's fragile recovery.

(Reporting by Leika Kihara and Takahiko Wada; Editing by Clarence Fernandez and Susan Fenton)