The likelihood of inflation in Japan moving towards the Bank of Japan's 2% target is steadily rising, the head of the country's banking lobby said on Thursday.

Masahiko Kato, chairman of the Japanese Bankers Association, did not comment on the likelihood of negative interest rates ending at the central bank's two-day policy meeting that ends on Tuesday next week.

"The BOJ will end negative rates appropriately depending on the economy, prices and financial conditions," Kato told reporters.

Investors are increasingly pricing in the chance of a policy shift next week as this year's annual wage negotiations have yielded bumper wage rises for employees of some major companies.

These heighten the chance that the BOJ will phase out its monetary stimulus, sources familiar with its thinking have said.

Ending negative interest rates would not radically change the way Japan's banks manage their assets, Kato said, adding that even if a rise in interest rates triggers temporary revaluation losses, they generally have plentiful capital.

Ending negative interest rates, which have been in place since 2016, would mark a landmark shift from the BOJ's massive stimulus programme and Japan's first interest rate hike since 2007. (Reporting by Anton Bridge and Ritsuko Shimizu; Editing by Alexander Smith)