Bank of Japan Policy Board members have begun openly signaling a policy switch, apparently taking comfort from reports pointing to an economic pickup.

There is speculation that the board will decide to raise a key short-term interest rate by 0.125 percentage point or 0.25 point at its July 17 meeting, ending its zero-interest-rate policy.

I do not personally believe, however, that a BOJ policy switch — a positive factor for the yen — will be in the pipeline before September.

Preliminary Economic Planning Agency figures released early this month showed a real 2.4 percent quarter-on-quarter rise in gross domestic product for the final quarter of fiscal 1999 that assured a 0.5 percent increase for all of the year.

Also earlier this month, the European Central Bank raised its refinancing rate by half a percentage point, a larger increase than most economists had expected, providing a quick lift to the euro in relation to the dollar and yen. The single European currency soon turned lower, however, amid speculation that the aggressive move gave the ECB room to leave the key interest rate unchanged at least until August.

Since the U.S. Federal Reserve raised key interest rates by half a percentage point May 16, jobs, consumer price and other data showed the U.S. economy slowing, raising expectations the Fed will leave rates unchanged until its August policy-setting Federal Open Market Committee meeting.

The BOJ’s quarterly “tankan” survey on business sentiment, due out July 4, will no doubt draw attention in the marketplace. Prime Minister Yoshiro Mori is expected to form his second Cabinet the same day.

Rumors have it that the new Cabinet will decide to compile a supplementary budget ahead of the Group of Eight summit to be held in Okinawa later in the month.

The ruling bloc would shun a strong yen, which will no doubt hurt Japan’s export earnings and undermine efforts to get the economy on a self-sustained growth path.

The dollar-yen rate appears likely to be locked in a narrow range between 103 yen and 107 yen for the month ahead, with the yen’s topside capped by sales by speculators guarded against BOJ intervention.