Bank of Japan Governor Kazuo Ueda's efforts to lift rock-bottom borrowing costs face fresh challenges as a yen rebound and the new political leadership's preference for loose monetary policy raise the hurdle for rate hikes.

The Bank of Japan will keep seeking the best timing to raise interest rates again as economic conditions continue to improve, according to former BOJ board member Takako Masai.

Ishiba, who was officially appointed as prime minister on Tuesday, had been seen by markets as endorsing the BOJ's policy normalisation, in part because of his comments to Reuters in August that a gradual hike in ultra-low rates will help boost Japan's profitability.

Bank of Japan Gov. Kazuo Ueda said he told new Prime Minister Shigeru Ishiba in a meeting on Wednesday that the central bank was supporting Japan's economy and will move cautiously in deciding whether to raise interest rates further.

By December, the BoJ will have several additional data points that will help it gain confidence in the “wage-price virtuous cycle”. If the data is favourable, it would support an additional increase before the end of the year. This remains the BoJ’s intention.

Japan's newly appointed economy minister, Ryosei Akazawa, said on Wednesday that Prime Minister Shigeru Ishiba expects the Bank of Japan to make careful economic assessments when raising interest rates again.

A survey last month showed 53% of economists forecast the BOJ would push up interest rates in December, but that outlook is now in question.

Japan’s new Prime Minister Shigeru Ishiba doesn’t unconditionally support the raising of interest rates, one of his closest allies said, underscoring the view that the new cabinet is unlikely to want the Bank of Japan to rush into further rate hikes.