The Bank of Japan is inclined to raise its benchmark policy rate by 25 basis points this month to address upside inflation risks, people familiar with the matter said, while keeping future hike timing flexible based on economic and price developments. Officials will discuss lifting the policy rate and continue to view inflation risks as skewed to the upside, with rising service prices and ongoing yen weakness strengthening the case for action. Sources said Japan’s economy is broadly tracking the central bank’s earlier outlook, so conditions do not warrant a large adjustment and a 50 basis point increase is considered unlikely, damping market expectations of a bigger move. The lean toward a measured hike comes as the BOJ normalizes policy after ending negative interest rates in March. Board member Hajime Takata has urged nimble adjustments tied to financial conditions rather than a fixed schedule and previously proposed lifting the short-term rate to 1.25% from 1%, a step rejected in an 8-1 July vote. Governor Kazuo Ueda has said the bank will keep raising rates while conditions remain accommodative, balancing inflation that has run above the 2% target for more than two years against modest wage growth and the cumulative effects of earlier increases.