Japanese central bank downgrades economy

Dec 20, 2007, 16:07 GMT

Tokyo - Japan's central bank Thursday lowered its assessment of the country's economy in its monthly report and said it would keep interest rates unchanged following a fall in business confidence related to continued worries over the US subprime lending crisis.

The Bank of Japan's nine-member policy board voted unanimously to keep the benchmark overnight lending rate at 0.5 per cent, which is the lowest among the major industrial economies.

Japan's economy is ''expanding moderately as a trend'' but that the pace of growth ''seems to be slowing,' according to the central bank's report, citing stricter rules for obtaining building permits which caused housing starts to plummet.

In November, the BoJ said the economy is expected to continue expanding moderately.

Exports, fixed investments and private consumption are likely to follow an upwards trend, the bank said.

   The decision not to raise rates had been widely expected. Analysts had said it was unlikely the bank would change the key rate while the US subprime mortgage problem was still causing serious concerns for the health of the American economy.

   The policy board said in a statement that the Bank of Japan 'will encourage the uncollateralized overnight call rate to remain at around 0.5 per cent.'

The bank ended its near-zero benchmark interest rate in July 2006 after six years and raised the rate to 0.25 per cent.

In February, the bank raised the rate again to 0.5 per cent.