Japan downgrades economic growth

The official downgrade added to worries that the world's second largest economy could be hurt by a slowdown in the US.

Japan's gross domestic product (GDP) grew at an annualised pace of 1.5% in the three months to September, down from an initial figure of 2.6%.

The revision also makes a rise in Japan's low interest rates unlikely.

Japanese companies appeared to be growing cautious on the economic outlook, with growth in capital investment on the previous quarter revised down to 1.1% from an earlier estimate of 1.7%.

Export risk

With the crisis in the US housing market casting a shadow over the global economy, Japan's exports are at risk of being hit by a slowdown in growth at its major trading partners.

"Japan will experience some pressure from a slowdown in advanced economies even with benefits from recent solid expansion in China and other emerging economies," said Morgan Stanley economist Takehiro Sato.

Lacklustre growth and lingering deflationary pressures mean that the Bank of Japan is likely to hold off on raising its key interest rate from the current 0.5% until the latter half of 2008.

The central bank raised interest rates in 2006 for the first time in almost six years.

It raised them again in February 2007 but has held them steady since then.

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