TOKYO, June 25 Reuters The Bank of Japan is dropping signals its quantitative tightening QT plan in July could be bigger than markets think, and may even be accompanied by an interest rate hike, as it steps up a steady retreat from its stillhuge monetary stimulus.

Hawkish hints delivered over the past week highlight the pressure the central bank faces in the wake of renewed yen falls, which could push inflation well above its 2 target by raising import costs.

Notwithstanding a market shock or severe economic downturn, a rate hike would be on the table at each policy meeting, including July39;s, said three sources familiar with its thinking.

Given what39;s happening with inflation, interest rates are clearly too low, said one of the sources. Much depends on upcoming data, but a July rate hike is a possibility, another source said, a view echoed by a third source.

The BOJ kept interest rates steady around zero this month.

However, the board debated the need for a timely hike with one member signaling the chance of doing so to prevent cost pressures from pushing up inflation too much, a summary of the meeting showed on Monday.

That was largely read as a sign the bank is gearing up for nearterm action.

Governor Kazuo Ueda told reporters after the meeting that a rate hike next month cannot be ruled out.

Hiking rates at the July 3031 meeting could have a huge impact on markets, as the BOJ also intends to announce a detailed plan on how it would trim its massive bond…