By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is likely to raise interest rates next week, preventing any market shocks if U.S. President-elect Donald Trump takes office, and will continue a pledge to will continue to push up borrowing costs if the economy continues to recover, said five. sources familiar with its thinking.

However, the central bank is unlikely to provide clear guidance on the pace of future rate hikes or how far it might raise them, the sources said.

Under its current guidance, the BOJ has pledged to continue raising its short-term policy rate if economic growth and prices move in line with its forecasts.

“For the BOJ, there is not much to add or change in this guidance given the very low real interest rates,” said one of the sources, a view echoed by another source.

Governor Kazuo Ueda and his deputy said earlier this week the BOJ will debate whether to raise interest rates, signaling its intention to take borrowing costs higher at its January 23-24 meeting unless the inaugural Trump’s speech on Monday lifted the markets.

As a result, markets are pricing in a more than 80% chance of an increase in interest rates from 0.25% to 0.5% next week, which will bring the BOJ’s policy rate to levels that are not seen since 2008.

Unless Trump’s speech and any executive orders he issues next week cause serious market disruption, the BOJ is likely to keep hiking rates, the sources said, speaking on the condition that cannot be identified because they are not allowed to speak publicly.

“The market seems to have got the BOJ’s message,” said one of the sources.

“While next week’s hike is certainly not a done deal, the remaining hurdle is what Trump can say and what the markets will do,” another source said.

With a hike next week seen as a near certainty, market attention is turning to any clues the BOJ might offer on the pace and timing of further hikes.

While many analysts expect the BOJ to raise rates by 0.75% in the second half of this year, the bank is unlikely to give much indication of the timing of its next move, sources said.

The BOJ also has no plans, at least for now, to offer details on Japan’s neutral rate beyond staff estimates that show it to be around -1% to 0.5% of inflation- adjusted level.

The staff estimate means that if inflation expectations stabilize around the BOJ’s 2% target, the BOJ could raise the short-term rate by at least around 1% without cooling. of economic growth.

Ueda declined to pinpoint the exact level of Japan’s neutral rate, saying it is very difficult to make reliable estimates due to a lack of data.

Even if the BOJ raises rates next week, short-term rates will remain below neutral levels, the sources said, adding that it was premature to discuss any major changes in guidance. of this future policy path.

“Due to the many uncertainties in the outlook, it is impossible to set a clear path or step” in future policy measures, a third source said.

The BOJ ended negative interest rates in March and raised its target short-term rate to 0.25% in July on the view that Japan is on track to maintain its 2% inflation target in bank.

Ueda signaled a willingness to raise rates if the expansion of wage increases supports consumption and allows companies to continue raising prices not only of goods but services.