RPT-PREVIEW-BOJ to keep rates steady, gloomy outlook prevails

(Repeats preview sent on June 10)

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*What: Bank of Japan two-day monetary policy meeting

*When: June 12-13. Rate decision likely noon-2 p.m. (0300-0500 GMT)

*BOJ's overnight call rate target seen steady at 0.5 percent

By Leika Kihara

TOKYO, June 10 (Reuters) - The Bank of Japan is expected to keep interest rates on hold at 0.5 percent this week as a slowing economy and gloom over corporate activity remain key concerns, with inflation still among the lowest in major economies.

Despite market expectations that the BOJ will follow the example of other big central banks and hike rates this year, it sees little need to shift to a tightening bias for now with Japan's economy hardly overheating and inflation not spreading much beyond food and energy prices.

"The BOJ's main worry is economic weakness, although it doesn't want to emphasise downside risks too much for fear of fanning inflation expectations," said Izuru Kato, chief economist at Totan Research.

"It's hard for the bank to move either way, which means it will likely stick to a neutral policy stance for some time."

Faced with the prospect of weakening growth as soaring raw materials costs bite, the BOJ dropped a two-year bias towards raising rates in April to take a neutral stance on policy.

That is in contrast with the U.S. Federal Reserve and the European Central Bank, which have both warned about inflation and signalled they were opting for rate hikes.

Recent hawkish remarks by Fed and ECB officials heightened expectations that the BOJ will follow in their footsteps and hike rates later this year.

Swap contracts on the overnight call rate on Tuesday afternoon showed investors see a roughly 80 percent chance of a hike to 0.75 percent by the year-end, nearly double a roughly 45 percent probability seen in early trade JPONIBOJ=TRDT.

While the BOJ sees rising public awareness of inflation as a risk, a rate hike would become an option only if inflation expectations begin to feed on themselves and prices of a wide range of goods shoot up on strong demand, BOJ sources said.

BOJ board members would also need to be convinced that economic uncertainties, such as slowing overseas growth, have cleared enough for Japan to achieve solid growth, they said.