The country's low interest rates will help the economy avoid slipping into a "deep" slump, Bank of Japan Gov. Masaaki Shirakawa said Monday.

"Japan's economy is unlikely to experience a deep adjustment phase," Shirakawa said at a speech in Osaka. The country's "accommodative environment for corporate finance is expected to continue to support business activity."

The BOJ last week described growth as "sluggish" for the first time in a decade, indicating it is unlikely to raise the benchmark interest rate from 0.5 percent anytime soon.

The global slowdown has started to weaken Japan's exports, putting a strain on an economy that has been squeezed by rising fuel and food prices, the BOJ said.

"The economy may emerge from a recession phase early next fiscal year, but the central bank won't be able to raise rates before mid-2009," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute and who used to work for the BOJ. Kumano predicts a rate increase "in the third quarter of next year at the earliest."

The BOJ must watch the risk that keeping interest rates low for a long time could overstimulate the economy once it picks up, Shirakawa said. The benchmark rate is the lowest in the industrialized world.

Shirakawa assumed the BOJ's top position in April after Prime Minister Yasuo Fukuda's first and second picks were rejected by the opposition parties that control the House of Councilors. Shirakawa had been appointed deputy governor only weeks earlier.