The Bank of Japan kept interest rates unchanged in December on concern about market "instability," and the rising risk that the U.S. slowdown will intensify, minutes show.
"Global financial markets continued to be unstable," members said at their Dec. 19-20 meeting, according to minutes published Friday. "In this situation, it was appropriate to carefully examine economic and financial developments at home and abroad."
The U.S. Federal Reserve this week cut its benchmark interest rate by three quarters of a percentage point to keep the economy from sliding into recession. Caution among BOJ Policy Board members extended into this month, with the bank keeping its rate at 0.5 percent and policymakers saying the growth forecasts on which they base decisions were too optimistic.
"The policy agenda is likely to shift toward a rate cut," said Takehiro Sato, chief economist at Morgan Stanley in Tokyo. The bank's focus on combating asset inflation "is out of sync with reality."
Policymakers downgraded their assessment of the economy for the first time in three years at the gathering.
The Nikkei 225 stock average this week had its worst two-day drop in 17 years on concern global growth is faltering.
BOJ Gov. Toshihiko Fukui, speaking after this week's decision, stuck to his mantra that Japan's interest rates, the lowest among major economies, need to rise eventually. He acknowledged that economic growth was "slightly slower" than the bank had forecast and added that he and his colleagues were in a "delicate" situation in setting policy.
The BOJ may have more than slower growth and falling markets to worry about. Record oil prices have also sparked inflation even as wages are stagnant.