BOJ Cuts Inflation, Growth Outlook; Policy Unchanged

The Bank of Japan forecast slower economic growth and abandoned a prediction that consumer prices will increase this year, making it harder to raise the world's lowest borrowing costs.

``Downside risks are increasing,'' Governor Toshihiko Fukui said in Tokyo today after his policy board kept interest rates on hold. He repeated the bank's commitment to raise rates as long as the economy keeps expanding and prices resume gaining.

Japan's longest expansion in more than 60 years is losing steam as U.S. mortgage defaults threaten global growth, higher oil prices squeeze profits and stagnant wages fail to spur consumer spending. Housing starts in Japan plunged 44 percent in September to the lowest level in four decades, the Land Ministry said today, after stricter rules delayed building approvals.

``The clear signal is that the BOJ intends to continue to gradually normalize rates,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``Realistically speaking, though, it will be difficult to hike rates before the end of this year.''

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