The Bank of Japan is watching the effect of higher commodities prices on global inflation and growth in the domestic economy, meeting minutes show.

Japan faces "considerable downside risks, including uncertainty regarding future developments in overseas economies and global financial markets," Policy Board members agreed at their May 19-20 meeting, according to the minutes released Wednesday. "Inflation risks had been heightening worldwide, given the high international commodity prices."

BOJ Gov. Masaaki Shirakawa said last week the Policy Board needs to examine whether rising oil and raw-materials prices will force companies and consumers to spend less.

"The Bank of Japan's message is that they're watching the upside risks for prices and downside risks for growth, and the latter will prevail for the time being," said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. "There will be little chance for the BOJ to raise rates at least during the current fiscal year" ending next March.

Rising commodities costs pushed wholesale-price inflation to 4.7 percent in May, the steepest rate in 27 years. Some companies have passed those costs to households, causing consumer prices to climb the most in a decade.

The seven Policy Board members agreed growth will probably keep cooling because of the increase in raw-materials prices. Shirakawa, after the board kept rates on hold last Friday, said costlier commodities exacerbate the "downside risks for domestic demand."