BOJ chief: Japan economy slowing

Japan's economy is slowing due to weakness in housing investment and cautious corporate sentiment, the central bank chief said Thursday, hours after the bank left its benchmark interest rate at 0.5 percent.

"The economic recovery cycle led by production, income, and expenditure remains intact. But a slowdown in the Japanese economy is happening now," Bank of Japan Gov. Toshihiko Fukui told reporters at a news conference.

Fukui's remarks came after the bank's policy board voted 9-0 to leave the unsecured overnight call rate unchanged. It was the first unanimous vote since June.

The governor's comments were slightly more negative than remarks he made earlier this month and suggest the central bank is still a ways from raising interest rates, which are the lowest among the Group of Seven industrialized nations.

The policy board's decision to keep the rate steady was widely expected as the effects of the U.S. subprime mortgage crisis continue to reverberate in global markets and cloud the outlook for Japan's export-dependent economy.

Fukui said the risk of an economic slowdown in the United States has increased.

"The subprime-related financial market turmoil is a process of risk reassessment," Fukui said, adding that the process of repricing is a bit difficult and may some more time.

The BOJ will closely watch domestic and overseas economies as downside risks in the U.S. and the global economies increase, he said.

In its economic report for December, the bank also downgraded its view of the state of Japan's economy for the first time in three years.

"'Japan's economy is expanding moderately as a trend, although the pace of growth seems to be slowing due to the drop in housing investment and other factors,' the bank said.

Previously, it had said Japan's economy was expanding moderately, without qualification.

The BOJ's decision comes less than a week after it released its closely-watch quarterly "tankan" survey, which showed managers at large-scale Japanese companies were the most pessimistic in more than two years.

The tankan also showed that small- and medium-sized companies have been hurt by higher raw materials prices. They have been unable to pass these costs on to product prices because of competition.

Earlier this month, Japan revised down its economic growth in the third quarter to an annual rate of 1.5 percent instead of an earlier estimate of 2.6 percent.