Bank of Japan keeps rates on hold

Some analysts say a further rate rise is unlikely before 2007

Japan's central bank has kept interest rates unchanged for a second consecutive month.

Members of the central bank opted unanimously to maintain the benchmark rate at 0.25%, as expected.

When rates were raised in July, after six years of zero interest rates, the move was seen as a sign of confidence in the strength of the economy.

However, recent consumer price figures have indicated that inflation may have been less than previously thought.

'Downward trend'

Consumer price figures for August have been revised downwards significantly.

The new data shows that consumer prices have risen only a fraction in 2006, while the previous figures measured inflation at between 0.5% to 0.6%.

"There is a possibility that [the bank's governor] Toshihiko Fukui might not rule out raising rates this year because the Bank of Japan needs to contain a downtrend in rates," said Hideo Kumano, an economist with Dai-chi Life Research Institute.

But many analysts now say a rate rise is unlikely before the first quarter of 2007.

With regard to interest rates changes, Mr Fukui said: "We will do it slowly while carefully assessing developments in economic activity and prices".

The zero interest rate policy had been adopted in 2001 as a means to boost the economy after a deep recession in the 1990s.

A key reason behind the recession had been deflation - falling prices - which deterred firms and individuals from spending because of expectations that goods would be cheaper in future.

In other data released on Friday, Japanese banks' lending levels rose in August for the eighth month in a row as firms continued borrowing for wider investments.

Loans outstanding for Japan's four main types of banks increased by 1.8% in August year-on-year to 447.4 trillion yen.