Bank of Japan Governor Masaaki Shirakawa distanced himself on Friday from the hawkish tone of US and European central bankers, and signalled slowing economic growth was still a key factor in deciding interest rates.
After keeping rates steady at 0.5 percent as expected, Shirakawa acknowledged that the rising global risk of inflation had prompted the US Federal Reserve and the European Central Bank to deliver unusually candid warnings to markets this month. But he said it was equally important to monitor the risk of slowing economic growth in Japan, with financial markets still bruised by a credit crisis weighing on the global economy.
Bets on rates rise from the world's biggest central banks gathered momentum after Chairman Ben Bernanke said the Fed would act to strongly resist rising inflation, while ECB President Jean-Claude Trichet raised the prospect of a rate rise as early as July.
Shirakawa said that the BoJ will guide policy with an eye on risks to growth and inflation worries, both of which have increased from April. The finance ministers of Japan and other Group of Eight nations are wrestling with the problem of how to tackle inflation triggered by soaring commodity prices at a meeting on Friday and Saturday in the Japanese city of Osaka.
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