The Wall Street Journal-20080216-Japan-s Recovery Is Slowed by Housing

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Japan's Recovery Is Slowed by Housing

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TOKYO -- Japan's economic recovery is softening, mainly because of weakness in housing investment, Bank of Japan Gov. Toshihiko Fukui said.

With prices in Japan rising and financial markets still in turmoil, however, the central bank is unlikely to take any action on interest rates for the time being. Earlier Friday, the bank voted unanimously to leave the overnight call rate steady at 0.50% for another month.

"We believe that a moderate economic recovery will continue in Japan, but we have to carefully analyze risk factors facing Japan before taking action," Mr. Fukui said.

"We will continue to carefully monitor developments in the global economy and financial markets, including risks facing Japan," he said, pledging to keep an eye on the economy and prices as well.

The U.S. Federal Reserve and European Central Bank are juggling downside risks to the economy and upside risks to inflation.

Mr. Fukui noted inflationary risks in Japan are relatively small compared with those in the U.S. and euro zone. Although the bank said it will keep a close eye on prices, it appears more concerned about growth. Profits at small and medium-sized companies, for example, are being squeezed by the cost of oil, making it hard for them to boost worker pay.