Japan holds the line on interest rates

Japan's central bank decided Wednesday to keep its key interest rate unchanged amid lingering worries about a global slowdown.

The Bank of Japan policy board meeting unanimously decided to keep the rate at 0.5%, the bank said in a statement.

The decision was widely expected amid continued uncertainty over the U.S. economy and its impact on global markets.

Japan's economy is slowing, and the bank will carefully examine downside risks at home and abroad before taking any concrete monetary policy steps, the policy board said in its semiannual outlook report released later Wednesday.

Housing and business investment "have been weaker than expected while exports have been stronger," the BOJ said, adding that capital spending will pick up gradually in fiscal 2008, which ends March 31, 2009.

The bank said uncertainty over the global economy and financial markets persists, citing "downside risks" to the U.S. economy as a potential threat to Japan.

"Given the current situation where the outlook for economic activity and prices is highly uncertain, it is not appropriate to predetermine the direction of future monetary policy," the report said.

It said the bank will "carefully assess the future outlook for economic activity and prices."

Higher CPI expected. For next fiscal year, the board said it expected the consumer price index, which excludes fresh food prices, to rise by 1%, and real gross domestic product to rise 1.7%, compared with 1.5% growth for financial year 2008.

The market was also awaiting signs about the future direction of monetary policy from comments later in the day from new Bank of Japan Gov. Masayuki Shirakawa.

Wednesday's decision is the first since Shirakawa took the helm of the central bank earlier this month. His assumption of the post followed weeks of a power vacuum after the term of his predecessor, Toshihiko Fukui, ended in March.

Much of last year, market watchers had expected the BOJ would soon start raising its key interest rate. The global economic turmoil set off at midyear by the U.S. subprime mortgage crisis has scotched that view.

Source: CNN